Understanding Hedged Scale Trading

Rating:
Summary: Currently the definitive work
Review: Mr. McCaffery writes with clarity and leads the reader surely towards a grasp of this somewhat arcane futures trading strategy. Scale trading with options means : buying (or shorting) a hedged commodity with the expectation that the price will revert to its mean within a certain period of time.

Specifically, you buy a commodity (sugar, soybeans, oil, etc.) that's trading toward its historic lows. You purchase put options to put a floor under the trade (limiting your risk), and scale into the trade (buy more futures at pre-determined intervals) if the price continues to fall. You are relying on the near certainty that the price must eventually rise. If you hold long enough and if all goes as it should (i.e., you execute), you will make a boatload of money in the eventuality. Obviously, attempting to scale trade a stock, which may have no tangible worth (think "Enron") is a bad idea, hence the focus on commodities futures.

"Understanding Hedged Scale Trading" offers a relatively user-friendly technique for playing in the pits. After explaining how the futures markets work, the author gets right down to the real nitty-gritty: deciding which commodities to trade, the mechanics of trading futures, and how to buy more time (roll over your position). There is even a short treatise on technical analysis.

According to the publisher (and my Amazon search), this is the only comprehensive book on hedged scale trading currently available. Good thing that it's a keeper.

Rating:
Summary: Hedged Scale Trading Doesn't Work
Review: No one knows what the value of a particular commodity truly is. So many factors determine the price that while you are buying on the way down you are throwing good money after bad. Gold did not increase in value for three years. Can you imagine hedge scaling and rolling over a losing position for three years? That's insanity.

I have been trading futures for 11 years, I have been an investor, a broker, and an author, I have written three books on the subject of futures investing and I would never tell a client to use this ridiculous strategy.

Rating:
Summary: Very disappointing
Review: The title of this book is misleading. Only one chapter in the entire book deals with hedged scale trading and to sum it up the author says..."buy puts". Brilliant. The rest of the book describes scale trading (poorly) and fundamental analysis. If you want to learn about scale trading go to the source. Look at Robert Weist's, "You Can't Loose Trading Commodities". Weist does a much better job describing this trading technique. This book was a real disappointment and waste of money (in my opinion).