Aluminium Trend Follower

Electricity accounts for approximately 35% of aluminium production costs. Smelting aluminium from alumina is extremely energy-intensive. When energy costs rise, production becomes unprofitable for some smelters, reducing supply and supporting prices. Energy crises have historically caused major aluminium price spikes.

Daily is recommended for position trading aluminium trends. These trends often last weeks to months, driven by energy costs, China policy, and industrial demand cycles. 4H works for more active swing trading. Weekly provides context for Daily signals.

Aluminium trends can last weeks to months, depending on the fundamental driver. Energy-driven moves (like 2021-2022) lasted many months. Shorter-term trends from inventory changes or China news may last 2-6 weeks. ADX staying above 25 indicates trend is still active.

This is normal and expected for trend following. The strategy deliberately cuts losses quickly (small losses) while letting winners run (large wins). Edge comes from winners being 2.5-4× larger than losers, not from being right often. A 40% win rate with 3:1 R/R is profitable.

Aluminium trades near 24 hours. LME (London) session has best liquidity. From Australia, evening (AEST) captures London session. Set Daily signals during morning (after Asia session), execute during day, and update stops after each daily close.

Extended losing streaks (5-7 trades) are normal in ranging markets. After 3 losses: verify rules were followed. After 5: check if ADX is below 20 (ranging). After 7: reduce size to 0.5% and reassess. Don't abandon the strategy - trends will return.

Aluminium and copper have moderate positive correlation (0.5-0.7) as both are industrial metals sensitive to China demand and global growth. They often trend together. Use copper direction for confirmation - if aluminium is bullish but copper bearish, reduce conviction.

Pullback entries (buying dips to 20/50 EMA) offer better R/R but require existing trend. Breakout entries (new highs) catch trend initiations but have more false signals. In established trends, prefer pullbacks. For potential new trends, consider breakouts with volume confirmation.

LME inventory tracks visible supply. Declining inventory = Demand exceeds supply = Bullish. Rising inventory = Oversupply = Bearish. Extreme low inventory can trigger short squeezes. Check weekly reports for context - major draws or builds can initiate or accelerate trends.

Chinese holidays (Lunar New Year, Golden Week) reduce trading activity. Existing positions can be held with trailing stops in place. Avoid initiating new positions immediately before major China holidays. Resume normal trading after markets reopen.

Use 5-10 years of daily data. Define precise rules (MA values, ADX threshold, ATR multiplier). Split 60/40 for development/validation. Measure: win rate (expect 35-45%), profit factor (target >1.3), max drawdown (<20%). Test parameter robustness across ranges. Include 2021-2022 energy crisis period.

If you have energy exposure (oil/gas stocks, energy CFDs), aluminium adds correlated risk in energy crisis scenarios. Consider total energy-sensitive exposure. In energy rallies, aluminium and energy positions both benefit - be aware of concentrated risk. Size aluminium smaller if heavily exposed to energy.

Failure modes: 1) Extended ranging periods (ADX < 20 for months), 2) Sharp V-shaped reversals before trailing stop adjusts, 3) Gap risk on major news, 4) Over-optimization to past data. Mitigate with ADX filter, timely stop updates, conservative sizing, and robust parameters.

Carbon pricing (EU ETS) adds to European smelter costs. Higher carbon prices = Higher production costs = Bullish for aluminium. Carbon-intensive production (coal-powered smelters) disadvantaged vs hydro-powered. Rising carbon prices support aluminium structurally. Watch EU carbon market for context.

Scale in after trend proves itself: 50% initial position on entry, add 25% on new high with higher trailing stop, final 25% on continued confirmation. Each add should have its own stop. Total position must not exceed risk limits. Only scale in direction of profit, never against.