In this guide, you’ll learn how to trade Copper using the MCX Copper intraday trading strategy. To fully understand the price behavior of all rare earth metals, traders need to incorporate Copper fundamental analysis. This will help them forecast whether the price of Copper will rise or fall.
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The easiest way to start Copper commodity trading is to use a technical chart. However, when trading base metals such as Copper, a chart will only tell you part of the story. You will also need to learn various Copper fundamental analysis techniques.
Let me explain…
The copper price is powered by various fundamental factors.
Knowing these fundamental forces that are at work all the time will help you understand the cycles in the metals market. Additionally, compared to the Forex trends, there are better trends created in the commodity market.
Copper trading can generate multi-year trends that are well-defined and easier to capture than Forex currency trends.
See the Copper chart below:
With this in mind, we’re going to explain how to trade Copper using a combination of both technical analysis and fundamental analysis. If you want to take advantage of the two types of trading analysis continue reading.
Are you ready?
Let’s start at the beginning…
Table of Contents hide
1 How Does Copper Commodity Trading Work?
2 How to Use Copper Fundamental Analysis?
2.1 #1 Copper Supply Imbalances
2.2 #2 Emerging Markets
2.3 #3 US Housing Market
3 What is the Best indicator for Copper Trading?
4 MCX Copper Intraday Trading Strategy
5 Copper Trading Tips
6 Final Words – Copper Commodity Trading
Copper commodity trading works the same way as many other asset classes (Forex, stocks, options, cryptocurrencies, etc.). This type of trading has many advantages and a few disadvantages. It mainly comes down to the supply and demand forces that govern copper. This is where fundamental analysis comes into play. More on that in the next section.
Copper also works as a safe hedging position.
Buying Copper or buying gold is a bet against the traditional markets and fiat currencies.
Many traders know how to trade gold, or crude oil, or soft commodities.
But, what about trading Copper?
Is there any difference between trading based metal Copper and trading other commodities?
The answer is both yes and no.
Let me explain…
When trading copper, you’ll notice the same chart patterns you are used to are also visible on the Copper chart. In this way, learning how to trade copper can be similar to other commodities.
However, when you look at the Copper fundamental analysis, the market dynamic shifts. Unlike stocks, bonds, and other assets, copper does not necessarily rise and fall with the market as a whole.
The red metal is on the path to becoming insufficient as the Copper demand increases.
For example, Tesla batteries like all other electric cars require Copper to be built. The increased global demand for Copper may lead to vast shortages in Copper. Commodity shortages usually, lead to big increases in the prices.
Now, you might be thinking…
How to determine the fundamentals that can drive the copper futures price?
We’re not going to answer everything that goes into fundamental analysis for trading Copper.
Instead, we’re going to reveal how to maximize profits by identifying high-probability trade setups on the Copper chart using the fundamentals.
Here is an easy approach to Copper commodity trading.
Use fundamental analysis to ascertain if the copper price is overvalued or undervalued relative to its intrinsic value.
Once you’ve determined that, you can use technical analysis to time your entries.
And that’s it.
In this section, you’ll learn the 3 biggest fundamental drivers that affect the copper price. Paying close attention to these drivers will help you predict whether copper will rise or fall. Without further ado, the following 3 macro drivers can be used as a barometer for the copper price:
- Supply and Demand imbalances.
- Emerging markets.
- US housing market.
#1 Copper Supply Imbalances
The copper production can be affected by several macroeconomic factors such as political factors, weather-related issues, and labor issues. Most of the world’s copper supply comes from South America, more specifically from Chile and Peru.
You might be wondering:
How can this affect copper prices?
Historically speaking, South American countries tend to have greater political instability which can lead to nationalizing the mining industry. Such events can lead to lower copper output and subsequently higher copper prices.
Finally, natural disasters like earthquakes can also disrupt copper mining output
#2 Emerging Markets
The emerging markets are growing at a faster pace than developed countries. This means that most of the global demand for copper is coming from here.
Here’s how this can drive copper price:
A slowdown in emerging economies can lead to lower copper demand.
And, lower copper demand has a negative effect on the copper price.
#3 US Housing Market
There is a fine link between copper consumption and the US home building industry.
Almost 50% of copper used in the USA is consumed by the housing market.
Here is a copper trading tip:
A slowdown in the US housing market can possibly lead to lower copper prices.
These copper trading tricks are useful because you can establish a better understanding of the market.
Now, the next thing you must know is how to time the copper market.
For this, we’re going to reveal the best indicator for copper trading.
The best indicator for copper trading is the CCI indicator or the Commodity Channel Index.
You might be wondering:
Why is the CCI indicator the best tool for copper commodity trading?
Because momentum is what day trading is all about.
The CCI indicator is a momentum-based indicator and we’re trying to learn the MCX copper intraday trading strategy.
Now, even though the CCI indicator can be used as a stand-alone tool, we’re also going to plot on the copper chart the 20 periods MA.
See the copper price chart below:
The MCX copper intraday trading strategy uses the CCI to establish the copper price in relation to a moving average.
Let me explain below, how the experts’ trades copper on the Multi Commodity Exchange of India Limited (MCX).
Now, the first thing you must understand is how the CCI works in relation to the price and the moving average:
- CCI is measuring how fast the price moves away from an average price (20-period MA).
- The further the price moves away from the 20-period MA, the stronger the momentum.
- When the price is hugging the 20 MA means that it’s lacking momentum.
- When the price is pulling from the MA it signals momentum.
See the copper price chart below:
Now, we still haven’t used the CCI readings, which is the missing component you’ll learn next. The relationship between the price and the moving average is just not enough to trade copper profitably.
So read on…
The CCI indicator will help you measure the strength of Copper momentum. This will help us decide if it’s worth to pull the trigger and trade Copper.
Here is what you must know:
- If you want to buy Copper the price has to cross and close above the 20-period moving average.
- At the same time, the CCI must cross above the zero line.
To have a potential AHA moment, let’s look at the copper chart below:
There are several methods that can be used to hide your protective stop loss.
Check here for two tips that will save your stop-loss from prematurely being hit: Stop-Loss Trading Strategy – 2 Tips To Safe Your SL.
Alternatively, for this particular copper trade setup, futures traders can hide their stop-loss below the candlestick that triggers the trade for a long position. At the same time, the profit target needs to be multiple times as much as your stop-loss to help you balance the risk.
Note* A break below the 20 MA can be a good profit-taking strategy. Moving average breakouts are known for signaling a trend reversal.
See the copper price chart below:
Let’s move on and learn a more conservative approach that can help you stay on the safe side.
Like all commodities, copper can establish long-lasting trends.
Trading in the direction of the copper trend can minimize risk and potentially increase your profits as well.
In short, we want to find a mature trend and ride that copper trend.
So, if you want to learn how to catch the copper trend, you need to pay attention to the following copper commodity trading rules (for the short side example):
- Compare how many times the CCI line was able to touch +200 level versus -200 level (this can help you determine whether markets are generally bearish or bullish).
- If the CCI is having a hard time to reach the +200 level and at the same time we’re able to touch -200 level multiple times, we know a bearish copper trend is in the making.
- Entry short when the copper price breaks below the 20 MA and CCI breaks below the zero line.
See this copper trade example below:
Next, we’re going to look at the interwoven web of correlations going on between the price of copper and other assets.
Now to start things off…
Here are some Copper trading tricks.
What is the correlation between the US Dollar (USD) and the price of commodities?
In normal trading conditions, dollar strength means commodity price weakness.
So, a strong dollar means a weak Copper but it also means a weak Oil, Gold, and other commodities. Read more about crude oil trading tips here.
We see this type of correlation repeating time and time again.
See the US dollar and copper correlation below:
The important thing to keep in mind is that correlation between the US dollar and Copper changes from one day to another day.
Here is one of the best copper trading tips: knowing when the correlation between the US dollar and Copper breaks can allow us to determine future price movements.
For example, when correlation breaks down between copper and US dollar this can lead to a reversal.
Here is how it looks like, in the highlighted area, we can observe the copper price moving up, but the US dollar wasn’t tracking the movement in the copper market and moved down. The break-in correlation has led to a reversal in the price of copper.
See copper chart below:
Now, what if we told you that there is a stronger correlation between the copper price and the AUD/USD exchange rate. Actually, the copper price and the Australian dollar have a 70% correlation. So, tracking the movement in AUUD/USD can be used to forecast the copper price.
Additionally, studying the correlation between the copper price and Chinese manufacturing PMI data can help you predict short-term price movements. China is a major copper consumer–around 50% of global copper is bought by China.
And here is the thing…
When the manufacturing activity in China slowdown, the demand for copper will suffer thus will lead to lower copper prices. This is why we saw copper lose more than 10 percent of its value following the outbreak of the coronavirus in China in 2020.
These are useful copper trading tips that can help you make better trading decisions.
The potential of the MCX copper intraday strategy is great if you follow all the trading tips outlined through this guide. Like with all trading strategies when you trade copper you have to make sure you follow the plan to the T. Be consistent and follow along with the copper fundamental analysis and don’t rely solely on the price action. Also, be sure to check out this guide on positional trading.
For those interested in copper commodity trading, here are a few things to keep in mind:
- The copper price is heavily driven by fundamental forces.
- Study the copper supply and demand equation.
- Use the best copper indicator – the CCI indicator.
- Copper and US dollar correlation can lead to profitable trading signals.
Thank you for reading!
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