Copper Momentum Strategy

MHG (micro) is better for most retail traders. The HG contract is 25,000 lbs with ~US$6,000+ initial margin and $12.50/tick. MHG is 2,500 lbs (1/10 the size) with ~US$600+ margin and $1.25/tick. Start with MHG for better position-sizing flexibility.

Copper trends are smoother and more sustained than gold because copper is driven by industrial demand, not speculation. Gold has safe-haven spikes and is more sensitive to USD/rates. Copper momentum tends to persist longer.

For momentum trading, use RSI 50 as your key level. RSI above 50 = positive momentum (stay bullish). RSI below 50 = negative momentum (stay bearish). Don't fade copper just because RSI is above 70 - in trends, it can stay there.

Roughly 8:00 AM - 1:00 PM ET is optimal - it overlaps the London (LME) morning and the most active COMEX hours, giving the highest volume and most significant moves. Avoid the thin overnight Globex session and the period around the daily maintenance break.

ADX tells you IF a trend exists, not the direction. ADX > 25 means a tradeable trend exists. ADX < 20 means no trend (ranging). Use ADX to filter - only take momentum trades when ADX confirms a trend.

Create a scoring system: RSI position/direction (0-3 points), MACD position/histogram (0-3 points), ADX strength (0-3 points), Trend/EMA (0-3 points), Volume (0-2 points). Trade when total score >= 10/15 for high confidence.

Divergence is when price and momentum indicator disagree (e.g., price makes higher high, RSI makes lower high). Use it for exits and stop tightening, not immediate reversals. Wait for price confirmation before trading the reversal.

Pullbacks are generally preferred - better entry price, confirmed trend, better R:R. But breakouts work for strong signals with volume surge. Use breakouts for initial entry in new trends, pullbacks for adding to established trends.

LME copper is the global benchmark. Check LME direction before COMEX HG trades - if LME is rallying, long signals have higher conviction. LME breakouts often precede COMEX moves. Use it for confirmation, not contradiction.

Use ATR-based sizing: Risk Amount / (1.5 × ATR × Tick Value) = Lots. Then adjust for signal quality (score/15) and regime (weak trend = 75%). This normalizes risk and allocates more to high-conviction setups.

Score each component: RSI (0-3 based on level, direction, rate of change), MACD (0-3 based on position, histogram, expansion), ADX (0-3 based on level, direction), Trend (0-3 based on EMA position, slope, breakout), Volume (0-2). Total 15 points, trade >= 10.

Higher TFs (weekly/daily) determine direction - only trade that way. Middle TFs (4-hour) show structure. Lower TFs (1-hour/15-min) provide entry timing. Score each TF's momentum, trade when 5+ of 7 points align across timeframes.

Factor models decompose returns into components: Price momentum (40% weight), Volume momentum (20%), Cross-asset momentum (20%), Fundamental momentum (20%). Calculate normalized scores for each, combine with weights. Score > 0.6 = strong signal.

Classify using ADX: Strong trend (>35), Weak trend (25-35), Mean reverting (<20), Transitional (rising from <20). Adjust parameters per regime - strong trend uses wide stops/full position, weak trend uses moderate stops/75% position.

Log every trade with: regime, score, entry/exit, result. Analyze performance by regime type, signal score, timeframe, and session. Look for pattern - which regimes/scores perform best? Optimize weights and thresholds based on data, not intuition.