Copper Momentum Strategy

MHG (Micro Copper) is better for most retail traders. HG is 25,000 lbs with ~$7,000+ initial margin and $12.50/tick. MHG is 2,500 lbs (one-tenth the size) with ~$700+ 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.

8:00 AM - 1:00 PM ET (U.S. daytime / COMEX hours) is optimal - deepest liquidity into the approximately 1:00 PM ET settlement, plus U.S. economic data impact. The London/LME morning (2:00-8:00 AM ET) frequently sets the day's tone. Avoid thin overnight liquidity.

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 physical benchmark, and COMEX HG is arbitraged tightly against it. Check LME direction and the COMEX-LME spread before HG trades - if LME is rallying and the spread is stable, HG long signals have higher conviction. The London/LME morning often precedes the COMEX move. Use it for confirmation, not contradiction.

Use ATR-based sizing: Risk Amount / (1.5 x ATR x 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 with transparent rules: 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.