Copper Trading Strategies: Leveraging Market Bias for Enhanced Performance

In this article, we'll dive into a unique aspect of the copper market that we can leverage to develop a systematic trading strategy.

Copper offers a range of characteristics ideal for creating automated strategies, whether you're following trends or looking for mean reversion. Here, we'll focus on bias and identify the most frequent movements during the Copper Future sessions (symbol HG on CME-Comex).

The concept of bias—repeated price behaviors over time—is one of the simplest triggers for building a trading strategy. It's a market inefficiency that shows up regularly at specific times or days. When this extends to longer periods, it’s called seasonality.

 

Analyzing Recurring Price Behaviors in the Copper Market

"We kick off our analysis with a study of the average weekly price movements of copper. We will focus on the CME-listed Copper Futures (@HG) using a 30-minute time frame and data from January 1, 2010, to July 31, 2023.

The aim of this analysis is to see if there are any recurring price behaviors across the week by analyzing the trend of the average monetary excursion. In this way, we can identify the days of the week when the market shows a statistical tendency to move in a certain direction.

 

Figure 1 – Copper Weekly Bias 2010-2023

 

In Figure 1, you can see a graphic representation of the weekly average price movements of Copper. By observing the trend of the blue line, we can see that, statistically, from 2010 onwards, the copper market tends to drop sharply on Mondays. Tuesday and Wednesday are mean-reverting days, meaning that prices often return to the average. Fridays generally see an upward trend.

What's most intriguing is the pattern of rebounding later in the day after morning drops. This is especially evident early in the week until Wednesday, with Thursday being more erratic, and Friday trending upwards.

What are the key times? As shown in Figure 1, Tuesday and Wednesday around 8:00 AM (New York time) are good buying times. This pattern is also seen on Mondays and, less clearly, around 8:00 AM on Thursdays. The "cleanest" days for this bias are Monday, Tuesday, and Wednesday, while it fades later in the week.

 

In-Depth Analysis of Copper Market Recurring Price Behaviors

Let's dig deeper into our analysis to see if this weekly trend is stable and recurring enough to be useful, or just a fluke.

Figure 2 – Copper Weekly Bias every 4 years until 2021

 

In Figure 2, you can observe a chart with four lines in different colors. Each line represents the weekly average price trends of Copper across different periods. As in the previous image, the blue line represents the price movements from 2010 to 2021. The other lines are instead obtained by breaking down the period from 2010 to 2021 into 4-year segments. So, the orange line represents the bias from 2010 to 2013, the yellow line represents the bias from 2014 to 2017, and the purple line represents the bias from 2018 to 2021.

The purpose of this chart is to let us compare the cumulative curve of all the years analyzed (blue line) with the market behavior across different periods, in order to confirm the persistence of the bias over the years.

As we can see, although some years, like 2010 to 2013, performed better than others, like 2018 to 2021, which showed a weaker bias, the comparison between the different periods confirms the stability of the bias. This is also confirmed by the fact that even in the worst years, the results were close to the average, indicating a stable behavior for both long and short positions.

In Figure 3, adding the latest period from 2022 to July 2023 (in green) shows that the bias persisted and even strengthened on Mondays and Wednesdays, while it changed on Tuesdays and Fridays.

Figure 3 – Copper Weekly Bias every 4 years until 2023

 

Lastly, looking at the overall Intraday trend, Figure 4 confirms daily lows between 7:30 and 8:00 (9:30 in the last 2 years) and daily highs around 22:00 and 23:00.

Figure 4 – Copper Intraday Bias every 4 years until 2023

 

With this information, systematic traders can build a strategy.

 

Developing a Copper Trading Strategy Using Market Bias

Here's a simple strategy: on a 15-minute time frame, with just two lines of code in MultiCharts Power Language, we set conditions for long trades. If the time is between 7:30 and 7:45 (limiting the entry to that bar), we buy at the next bar’s market price, expecting a rebound at this time, which we observed as a turning point for prices. We close the long trade at 22:15. Here is the code:

if time>=730 and t<745 then buy next bar market;

if time>=2215 then sell next bar market;

For short trades, we enter at one in the morning, between one and one fifteen, and close when it's time to go long again:

if time>=100 and t<115 then sellshort next bar market;

if time>=730 then buytocover next bar market;

Let's see how this simple strategy would have performed over recent years without any filters.

Figure 5 – Equity line

 

As shown in Figures 5 and 6, from 2010 to today, the strategy would have performed well, with a steady overall equity line.

Figure 6 – Total Trade Analysis

 

Looking at the average trade (Figure 6), the high number of trades makes the metric too low to cover operating costs. Remember, one tick on copper is $12.50, so a value of $48.44 is definitely very tight.

 

Conclusion: Effectiveness of Copper Trading Strategies Using Market Bias

The main downside of this strategy is the low average trade value. However, it remains a raw strategy that needs further improvement. You could limit short entries to days when the short bias is strong and vice versa for long entries. Adding stop losses, patterns, and conditions could refine and increase the average trade. The possibilities are endless, but we leave this as a base for you to study and develop your strategies.

Until next time, happy trading!

Andrea Unger

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.