Copper Momentum Strategy

Copper is nicknamed 'Doctor Copper' because it's considered a reliable indicator of global economic health. As an industrial metal used in construction, electronics, and manufacturing, copper demand reflects economic activity. Rising copper often predicts economic expansion; falling copper suggests contraction.

Use 10-period (fast) and 20-period (slow) simple moving averages for copper momentum trading. When the 10 MA crosses above the 20 MA (golden cross), it's bullish. When it crosses below (death cross), it's bearish. Apply to 4H or Daily timeframe.

ADX measures trend strength. Only take momentum signals when ADX > 25, which confirms a strong trend exists. When ADX < 20, the market is ranging and momentum signals will whipsaw. ADX filtering dramatically improves win rate.

Copper and the US dollar have an inverse correlation. Since copper is priced in USD, a strong dollar makes copper more expensive for foreign buyers, typically pushing prices down. A weak dollar makes copper cheaper globally, supporting higher prices.

Risk 1.5% of account per copper momentum trade. This is slightly higher than energy commodities (1%) due to copper's more moderate volatility. Use a 2.5× ATR stop to give trades room to breathe while protecting capital.

For long signals: Require RSI > 50 (bullish momentum) and MACD line above signal line. For short signals: Require RSI < 50 (bearish momentum) and MACD below signal line. This confluence with MA crossover filters false signals.

China Manufacturing PMI is most important (China uses 50%+ of global copper). US ISM Manufacturing and Non-Farm Payrolls also matter. COMEX and LME inventory data shows supply/demand. Check calendar before trading; avoid new entries before major releases.

Use weekly chart for trend bias (is fast MA above or below slow MA?). Only take daily signals aligned with weekly direction. Weekly bullish = only take daily golden crosses. Weekly bearish = only take daily death crosses. Alignment improves win rate.

Monitor: US Dollar Index (inverse - dollar up = copper down), Australian Dollar (positive - AUD up = copper up), China equities (positive - China stocks up = copper up), copper miners like FCX (positive - should move together). Divergences are warning signs.

After 1× ATR profit, move stop to breakeven. Then trail at 2× ATR from the highest price (for longs) or lowest price (for shorts). Alternatively, trail using the 20-period MA as dynamic support/resistance. Exit on close through the trailing level.

Components: Calculate SMA(10), SMA(20), ADX(14), RSI(14), MACD(12,26,9). Signal logic: Long when fast > slow crossover AND ADX > 25 AND RSI > 50 AND MACD > Signal. Exit on opposite crossover or trailing stop. Backtest across economic cycles including 2008, 2020.

Use options for defined risk: Buy calls on golden cross, puts on death cross. Maximum loss = premium. Use 30-60 DTE for momentum trades. Bull call spreads reduce cost while capping profit. COMEX offers copper options on HG futures.

Bull regime: Rising PMIs, infrastructure spending, ADX elevated trending up. Bear regime: Falling PMIs, recession fears, ADX elevated trending down. Consolidation: Uncertain outlook, ADX < 20. Also use copper/gold ratio: rising = risk-on (bull), falling = risk-off (bear).

Allocate 15-20% of commodities capital to copper momentum. Maximum 3% total copper exposure. Manage correlation with other risk-on assets (copper correlates with AUD, emerging market equities). Track performance by regime for optimization.

Copper/gold ratio reflects market risk appetite. Rising ratio = risk-on (economic optimism, bullish copper). Falling ratio = risk-off (safety seeking, bullish gold). Use for regime identification and as confirmation for copper momentum signals.