Aluminium RSI Strategy

RSI (Relative Strength Index) measures momentum - the speed and magnitude of recent price changes. It ranges 0-100, with > 70 indicating overbought and < 30 oversold. It helps identify potential reversal points and momentum shifts.

In strong trends (especially energy-driven for aluminium), RSI can stay overbought or oversold for extended periods without price reversing. A reversal candle confirms actual turning, filtering false signals.

RSI 50 is equilibrium. Above 50 = gains exceeding losses (bullish momentum). Below 50 = losses exceeding gains (bearish momentum). Crossing 50 signals momentum shift.

Standard 14-period RSI with 70/30 levels works well for aluminium. Its moderate volatility means standard settings are effective. Use 4H or Daily timeframe for reliable signals.

Risk 1.5% per trade standard for aluminium. Use 1.5× ATR stop. Position = (Account × 1.5%) / (1.5 × ATR). Aluminium's lower ATR may allow larger positions but respect portfolio limits.

Divergence: price and RSI disagree. Bullish divergence: price lower low, RSI higher low. Bearish divergence: price higher high, RSI lower high. Wait for price confirmation before entering. Aluminium's grinding trends make divergence reliable.

Daily RSI sets bias (> 50 favor longs, < 50 favor shorts). Take 4H signals aligned with Daily. Strongest: both timeframes at same extreme. Conflicting timeframes warrant caution or skipping.

Energy is fundamental to aluminium. RSI oversold + rising energy = strong long (cost support). RSI overbought + falling energy = strong short. Aligned energy context increases conviction.

RSI fails to reach previous extreme. After oversold, RSI bounces, pulls back but makes higher low (doesn't reach previous low), then breaks higher. Shows momentum shifting - powerful reversal signal for aluminium.

China data (PMI, production) can push RSI to extremes. Post-data extremes often mean revert. Wait 2-4 hours for reaction to settle. Confirming data strengthens RSI signals.

Calculate RSI using gains/losses over 14 periods. Signal logic: mean reversion at < 30/> 70 with candle confirm, momentum on 50 cross with ADX > 20. Divergence: compare price and RSI swing points. Test across energy cycles.

Buy calls at oversold, puts at overbought for defined risk. Use 21-30 DTE for mean reversion, 30-45 DTE for momentum. LME aluminium options available with reasonable liquidity.

Bull (rising energy): RSI operates 40-75, adjust oversold to 40. Bear (falling energy): RSI operates 25-60, adjust overbought to 60. Ranging: standard 30-70. Identify regime using energy trend and ADX.

Compare RSI across aluminium, energy, copper. Aligned oversold = sector weakness, investigate. Aluminium oversold + energy rising = strong long with cost support. Divergences require investigation.

Aluminium RSI: 10-15% of commodities allocation. Max 3% total aluminium exposure. Track by signal type. Manage correlation with copper RSI and energy.