Brian Schad, President

The following is an example and explanation of the above information: (This example is with 'sugar.' It does NOT reflect current market conditions.)

JULY SUGAR (SB) - Trend is UP / ...and we're LONG / If SBN opens at/ABOVE 15.93 and trades down to 15.90, or trades .30 points - ICE Open, then take the following action whichever occurs first...

Action to take (Sugar):  Sell back futures on a stop.  If filled, re-enter with trend .30 points + ICE Open.

1) July Sugar - Trend is "UP"/DOWN/FLAT

This is the July Sugar contract. If you take a look at a chart for this market, you will see that the overall trend in this market (at the time of writing) is up/down/flat. I do use a 10-week/18-day moving average as the trend indicator.  Since the trend is up, I want to make sure I take ALL trades with the trend. This is primary!

2) "...and we're LONG"

This indicates the price momentum had changed from a downward "cycle," to an upward cycle and in this case I am "long" with the overall trend. If the overall trend is UP, I am personally taking ALL/most trades to the long side.  If the overall trend was DOWN, and our positions are currently none ("No Position"), this implies I was 'stopped out' of a previous long position when the momentum cycle had changed from "up," to down.

3) If SBN opens at/ABOVE 15.93, and trades down to 15.90,...

This is the first condition to exit/hedge/reverse my long position.  Since we're awaiting the day session open ("DSO") - or the ICE Open in this case - if it opens at/ABOVE 15.93 we must first evaluate the possible exit/hedge/reverse action at 15.90 to see if this price will be realized BEFORE the next conditions' price (the price .30 points below the ICE Open) would occur.

4) "...or trades .30 points - ICE Open, then take the following action whichever occurs first..."

As the second condition states, I will next SUBTRACT .30 points from the ICE Open price to consider where to place a SELL stop order with my broker to exit (offset/liquidate), or hedge, this long position.  Now, I compare the prospective price .30 points BELOW the ICE Open in this second condition to the price of 15.90, as determined in the prior condition.  In other words, record the open and figure out the math.  Take which ever trade will occur first (at your discretion) to maximize gain/minimize loss.  My other choice is to REVERSE this position from long, to "short" at the price .30 points BELOW the DSO.  Sometimes I will elect to reverse positions - especially if the risk is rather low.

5) "Action to take (Sugar): Sell back futures on a stop.  If filled, re-enter with trend .30 points + ICE Open."

If filled, either on the 15.90 sell stop, or .30 points BELOW the DSO as the price to either exit/hedge/reverse the long position, then next place a "day order" to buy long sugar to re-establish a new long position "with the trend."  If the market "whipsaws" us - out of the position, then back in .30 points ABOVE the ICE Open - then we're back in the game following our very same game plan today, then tomorrow, and always.  Whatever YOUR plan...stick with it!

After hanging up with the broker, it's time to go fishing, get back to work, ...or go back to bed (depending on which time zone you are in)!

If there are any further questions, please don't hesitate to ask!  I'm here for you.

"This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

Futures and options trading involve risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this market letter be construed as an express or an implied promise, guarantee or implication by or from SCHAD COMMODITY FUTURES & OPTIONS TRADING CORPORATION, or BRIAN SCHAD, CTA that you will profit or that losses can or will be limited in any manner whatsoever.

Extreme market conditions or other extenuating circumstances can substantially increase loss due to the inability to execute a "Stop Loss" order. Past results are no indication of future performance."

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