| Strategy Type | Trend Following |
| Market Bias | Directional - Trade with established trends |
| Timeframe | 15-minute to Daily charts |
| Holding Period | 4 hours to several days (swing trading) |
| Risk Reward Ratio | 1:2 to 1:4 |
| Capital Required | C$1,500-12,000 depending on contract (LMEmini Zinc 5t vs full LME Zinc 25t lot); margins are USD-denominated and broker-set |
| Best Market Conditions | Clear trending markets with sustained directional moves |
| Key Concept | Identify and ride zinc trends using multiple moving averages and trend confirmation indicators |
| Exchange | LME (London Metal Exchange) - the global zinc benchmark. Canada has no domestic listed base-metals futures market (the Montreal Exchange lists only financial/equity/index/rate derivatives), so Canadian retail traders access zinc futures through CIRO-regulated brokers that offer LME and/or CME access (e.g. Interactive Brokers Canada). |
| Currency Consideration | All LME/CME zinc contracts are quoted and settled in US dollars • A Canadian trader carries USD/CAD exposure in addition to zinc price risk. A profitable zinc trade can be eroded (or amplified) by CAD strengthening/weakening against the USD before funds are repatriated. • Track P&L in USD first, then convert; consider whether your broker holds USD balances (avoids round-trip conversion costs). Large/longer-held positions may warrant a USD/CAD hedge. |
| Trading Hours | LME Select electronic trading runs nearly around the clock; the most active price discovery and the official price-setting Ring/kerb sessions occur during London hours, roughly 3:00 AM - 1:00 PM ET. Core North-American access window ~3:00 AM - 5:00 PM ET. |
| Zinc Fundamentals | Galvanizing steel (~50%), brass/bronze alloys, die-casting, batteries • Construction, automotive, infrastructure, renewable-energy build-out • China production (~40% global), mine disruptions, LME warehouse stocks • Canada is a significant zinc player: Teck Resources (TSX: TECK.A/TECK.B) is one of the world's largest mined-zinc producers - Red Dog ore feeds the Trail, BC smelter (~310,000 t/yr refined-zinc capacity). Canadian production and Teck guidance are watched alongside global balances. • LME inventory & cancelled warrants, ILZSG balances, China output data, Teck/major-producer guidance |
| Tax Implications | Per CRA archived bulletin IT-346R, a Canadian resident is taxed on commodity-futures profits whether traded on a Canadian or foreign exchange (worldwide income). A 'speculator' may report gains/losses either on CAPITAL account (only 50% of the gain taxable; capital losses offset only capital gains) OR on INCOME account (100% taxable, but losses offset any income) - the chosen basis must be applied CONSISTENTLY year to year. Frequent/active intraday trading is more likely to be assessed as business (income) treatment. Transactions are reported by your broker on a T5008. The capital gains inclusion rate is 50% for 2026 (the proposed 66.67% increase was cancelled 21 Mar 2025). Canada has no commodities transaction tax (no CTT/STT equivalent). USD gains/losses are converted to CAD at the relevant transaction rate. |
| Regulatory Framework | Derivatives dealers are overseen by CIRO (Canadian Investment Regulatory Organization, the national SRO formed from the 2023 IIROC+MFDA merger), under the provincial securities regulators within the CSA. From 1 January 2026 CIRO uses a single 'Derivatives' product category (merging the legacy options/futures categories), and CSA Multilateral Instrument 93-101 (Derivatives: Business Conduct) governs dealer conduct. Trade settlement moved to T+1 in May 2024. |
| Alternative Access | Traders who cannot trade LME/CME futures directly can gain Canadian-listed zinc exposure via equities (e.g. Teck Resources, Foran Mining, Fireweed Metals on the TSX/TSXV) or base-metals ETFs. Note: those instruments do NOT replicate the leverage, tick economics or intraday behaviour of zinc futures - the trend-following rules below are written for the LME/CME futures and apply only loosely to equities. |
LMEmini Zinc is better for most retail traders. The full LME Zinc lot is 25 tonnes (US$12.50/tick, US$25 per US$1/tonne move) with several thousand USD of margin. LMEmini Zinc is 5 tonnes, cash-settled monthly against the LME Official Settlement Price (US$2.50/tick, US$5 per US$1/tonne move), with much lower margin (~US$600-1,200). Start with LMEmini Zinc for better position-sizing flexibility and lower capital requirement. Remember both are USD-denominated, so a Canadian account also carries USD/CAD currency exposure. Access is via a CIRO-regulated broker offering LME (or CME) products.
Use 1-hour chart as your primary trading timeframe. Check daily chart for overall trend direction, and use 15-minute for entry timing. This multi-timeframe approach gives you context and precision.
Check ADX - it should be above 25 for a tradeable trend. Also ensure EMAs are properly aligned (Price > EMA9 > EMA21 > EMA50 for uptrend). If ADX is below 20 or EMAs are tangled, the trend is not strong enough.
A pullback entry is when you wait for price to retrace to a moving average (like EMA21) before entering in the trend direction. It's preferred because you get a better entry price, the trend is already confirmed, and you have a clear stop level.
Risk 1.5-2% of your capital per trade. For trend following, this is important because the strategy has lower win rate (35-45%). Proper position sizing ensures you survive losing streaks and capitalize when trends work.
Daily chart sets direction (only trade that way). 4-hour shows setups developing. 1-hour gives entry timing. The ideal trade: Daily trending + 4-hour pulling back + 1-hour showing resumption. Never trade against the daily trend.
Use Supertrend as a confirmation and trailing tool. Entry signal: EMAs aligned + ADX > 25 + Supertrend flips in trend direction. Trail stop: Use Supertrend line (green in uptrend) as your trailing stop. Exit when price closes beyond the Supertrend line.
Market structure is the pattern of swing highs and lows. Uptrend = Higher Highs + Higher Lows. Enter near Higher Lows (pullbacks) with stop below them. Exit when structure breaks (a Lower Low forms in uptrend).
Scale out approach: T1 (2x ATR) - exit 50%, move stop to breakeven. T2 (4x ATR) - exit 25%, trail rest with EMA21. This captures quick moves with half the position while letting the rest run for extended trends.
Accumulation: Price ranging, ADX < 20, EMAs flat. Markup: Price breaking out, ADX rising > 25, EMAs aligning bullish. Distribution: Price ranging at highs, ADX falling. Markdown: Price breaking down, ADX rising, EMAs bearish. Trend follow in Markup/Markdown only.
Score components: EMA alignment (0-5 points), ADX strength (0-4 points), Structure (0-2 points). Total max 11. Trade with score >= 7 for uptrends, <= 3 for downtrends. Size positions based on score (9-11 = full, 7-8 = 75%, 5-6 = 50%).
Strong trending (ADX > 35): Tight trails (1.5x ATR), full size, add on pullbacks. Moderate (ADX 25-35): Standard trails (2x ATR), standard size. Weak (ADX 20-25): Wide trails (2.5x ATR), selective entries, reduced size. Ranging (ADX < 20): No trend trades.
Individual position max: 2% risk. Correlated group max: 4% risk (e.g., all base metals). Total trend exposure max: 10%. Monitor portfolio heat (sum of all position risks). Reduce or don't add when heat > 8%. Diversify across uncorrelated assets.
Key metrics: Win rate (expect 35-45%), Profit factor (target > 1.8), Avg Win/Avg Loss ratio (target 2-4x), Max drawdown, Recovery factor (Net Profit/Max DD, target > 2). Analyze by entry type, regime, and asset for optimization insights.
System layers: (1) Screening - scan universe for trend score, (2) Regime classification, (3) Entry signals with MTF alignment, (4) Position sizing with ATR and score adjustment, (5) Execution with stops/targets, (6) Management with trailing, (7) Performance tracking. Integrate all layers for systematic trading.
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