How to Use Scale Trading in Futures and Commodities

Scale trading is a popular style of trading system which based on the idea that there is a limitation of how low the price can go. The scale trading technique tries to make profit from a market that is at historically low price levels.

There will always be demand for commodities, such as oil or gold, at some price. That is the difference between commodities and financial products, such as index futures or stock futures, which are paper assets with no real value and can be subject to devaluation. Therefore this technique is suitable for commodities trading.

Normally, traders who use the scale trading as their trading system do the following steps.

• Find a commodity that is trading near its historically low price level.
• Set up the scale trading plan. For example, when trading oil, a trader may start buying at $40 and buy more contracts every $2 down.
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  Hence, the others buying prices are $38, $36, $34 and so on.
• Whenever the futures contract reverses and eventually rallies, the trader begins to take profits on the contracts. For example, if the oil goes down to $33, trader will hold 4 contracts at the prices $40, $38, $36, $34. When the price rise to $45, the contracts acquired at $34, $36, $38, $40 would be sold out at $36, $38, $40, $42 respectively.
• Repeat the steps over and over.

  Some expert traders might also try to use this trading technique in forex or any other markets than commodities. However the scale trading technique need large amount of trading capital and the well consideration of market timing. If not, traders could be blown out.