Livestock CTA LLC

THE ADVISOR’S TRADING PROGRAM<br> As the name suggests, Livestock CTA, LLC (“Livestock”) primarily trades livestock futures and options. The bulk of trading is in Lean Hogs, Live Cattle and Feeder Cattle at the Chicago Mercantile Exchange. Livestock will occasionally trade the grain markets but this will account for a minority of the trading volume. <br><br> Mr. Show is president and sole trader for Livestock. Through Peacock, Mr. Show sells roughly 3 million pounds of fresh and frozen pork per month. His contacts are extensive in the cash livestock markets and include major packers, processors, and large hedge accounts. As required by law, his firm reports all cash trades to the USDA which in turn disseminates these price changes to the major wire houses at the end of the day. The wire houses then release it to newspapers, radio and trade publications which, many traders use to base their trading decisions on. <br><br> Livestock believes being well connected in the cash side and on top of the fundamentals in the livestock markets gives them a distinctive edge in trading livestock futures markets. The fundamentals effecting livestock accounts for roughly 75% of Livestock’s trading decisions. The other 25% of their decision process comes from the technical and statistical analysis. They employ neural networks and Elliott Wave analysis for timing and use statistical analysis for seasonal tendencies, crop report estimates and import export figures. Relative value is used for spreading one contract against another within the livestock futures markets. <br><br> Putting these fundamental, statistical and technical factors together constitutes Livestock’s decision making process for determining trades. Livestock believes determining potential trades is only one important part of what separates successful CTAs from unsuccessful ones. The other important part is risk management. Livestock takes risk management very seriously and follows a specific routine to determine whether a decision to trade meets their stringent risk parameters. This process begins by determining where their maximum stop loss would be with the total dollar amount to risk on each trade and total risk per trade. They then determine position size of approximately 5% risk per trade. In the following calculation Livestock takes a look at projected target levels and tries to establish a minimum price target for taking profits. They then determine the reward to risk ratio which must be at least 1.5 to 1.0 with the goal of the risk being no greater than approximately 5% of the account’s balance. If the risk is too great or the reward is too small then the trade is passed. Also if the reward is potentially huge but the risk per trade is greater than approximately 5%, the CTA will pass on the trade. Livestock uses this method of determining whether to accept or reject a trade regardless of fundamentals and technical factors.