Copper RSI Strategy

RSI (Relative Strength Index) is a momentum oscillator that measures the speed and magnitude of recent price changes. It ranges from 0 to 100, with readings above 70 indicating overbought conditions and below 30 indicating oversold. It helps identify potential reversal points.

In strong trends, RSI can stay overbought (>70) or oversold (<30) for extended periods without price reversing. Waiting for a reversal candle (hammer, engulfing, etc.) confirms that price is actually turning, not just temporarily at an extreme.

RSI 50 is the equilibrium point. Above 50 means average gains exceed average losses (bullish momentum). Below 50 means average losses exceed gains (bearish momentum). Crossing 50 signals a momentum shift.

Standard settings work well: 14-period RSI with 70 overbought and 30 oversold levels. For 4H and Daily timeframes, these provide good signal quality. You can use 80/20 levels for fewer but higher probability signals.

Risk 1.5% of account per trade. Use a 2.5× ATR stop to give trades room. Example: S$20,000 account, 1.5% = S$300 risk. If ATR is $0.08, stop is $0.20, position is S$1,500 per $1 move.

Divergence occurs when price and RSI disagree. Bullish divergence: price makes lower low, RSI makes higher low - potential bullish reversal. Bearish divergence: price makes higher high, RSI makes lower high - potential bearish reversal. Wait for price confirmation before entering.

Use Daily RSI for bias: >50 favors longs, <50 favors shorts. Take 4H signals aligned with Daily. Strongest signals: both timeframes at same extreme (both oversold = strong long). Conflicting timeframes warrant caution.

In uptrends (bull regime), RSI oscillates 40-80; raise oversold to 40. In downtrends (bear regime), RSI oscillates 20-60; lower overbought to 60. In ranging markets, use standard 30-70.

A failure swing occurs when RSI fails to reach its previous extreme. After oversold (<30), RSI bounces, pulls back but makes higher low (doesn't reach previous low), then breaks higher. This confirms momentum shifting - powerful reversal signal.

Major data (China PMI) can push RSI to extremes quickly. Post-data RSI extremes often revert as market digests news. Wait 1-2 hours after major release for volatility to settle before trading RSI signals.

Calculate RSI: separate gains/losses, average each over N periods, RS = avg gain/loss, RSI = 100 - [100/(1+RS)]. Signal logic: mean reversion at <30/>70 with candle confirm, momentum on 50 cross. Divergence: compare price and RSI swing points. Test across multiple market regimes.

Buy calls when oversold (<30), puts when overbought (>70) for defined risk. Use 14-30 DTE for mean reversion (quick moves), 30-60 DTE for momentum. Credit spreads can be sold at RSI extremes to collect premium. COMEX offers copper options.

Bull regime: RSI operates 40-80, use 40 oversold level. Bear regime: RSI operates 20-60, use 60 overbought level. Ranging: standard 30-70 works. Identify regime using ADX and 200 MA before applying RSI.

Compare RSI across correlated markets: copper, AUD, China equities should align. Copper oversold + AUD oversold = higher conviction long. Divergence (copper oversold, AUD not) reduces conviction. Also watch for leading markets (AUD RSI often leads copper).

Copper RSI: 15-20% of commodities allocation. Maximum 3% total copper exposure. Track by signal type (mean reversion, momentum, divergence) to identify edge. Manage correlation with gold RSI (usually uncorrelated) and AUD RSI (correlated).