5. Commodity ETF Breakout

Entry Logic

Trigger: Commodity ETF (DBC) daily close above 52-week high. Confirmation: Daily volume 2x average. Timeframe: Daily for trigger and confirmation. Location Context: DBC breaking out of multi-month consolidation. Market Condition: Inflationary pressures, supply chain disruptions.

Exit Logic

Profit Target: DBC reaches 3.0 ATR from entry. Scaling Out: 25% position at 1 ATR profit, 25% at 2 ATR. Trailing Stop: 1.0 ATR below highest daily close. Signal Failure: DBC daily close below 52-week high. Time Expiration: No open position after 15 trading days. Momentum Loss: DBC daily MACD line crosses below signal line.

Stop Loss Structure

Hard Stop: 1.5 ATR below entry price. Soft Stop: DBC daily close below 20-DMA. Max Dollar Loss: $1000 per trade. Max Percent Loss: 2.5% of trading capital. Structural Stop: DBC breaks below previous swing low on weekly chart.

Risk Management Framework

Risk Per Trade: 2% of capital. Daily Limit: 6% capital loss. Weekly Limit: 13% capital loss. Max Drawdown: 30% of capital. R:R Requirement: Minimum 2.5:1.

Position Sizing Model

Sizing Approach: Fixed fractional 2% risk. Volatility Adjustment: Use daily ATR for share size. Conviction Sizing: 2.5% risk for A+ setups with strong fundamental drivers. Scaling In/Out: Scale out at profit targets. Never scale in.

Trade Filtering

Market Conditions: High inflation readings. Setups: Clear 52-week high breakout. Instruments: DBC. Time Restrictions: Avoid trading during OPEC meetings. Chop/News Avoidance: Avoid major agricultural reports.

Context Framework

Trend Direction: Commodities uptrend. VWAP Relationship: DBC daily close above weekly VWAP. MA Relationship: DBC daily above 20 and 50 DMA. Range Location: DBC breaking out of multi-year base. Higher TF: Weekly DBC chart shows strong momentum.

Trade Management Rules

Breakeven: Move stop to entry after 1.0 ATR profit. Scale Out: 25% at 1 ATR, 25% at 2 ATR, rest at 3 ATR. Add Size: Never. Fast vs Slow Moves: Tighten stops on parabolic moves.

Time Rules

Optimal Window: 10:00 AM - 3:00 PM EST. Times to Avoid: Overnight. Session Notes: Broad market hours offer liquidity.

Setup Classification

A+ Criteria: Breakout with 3x average volume, strong fundamental news, clear supply constraints. A Criteria: Breakout with 2x average volume, moderate fundamental news. B Criteria: Breakout with 1.5x average volume. C Criteria: Avoid.

Market Selection Criteria

Instruments: DBC. Volume: Average daily volume > 10 million shares. Volatility: ATR daily > 2%.

Statistical Edge Metrics

Win Rate: 45%. Avg Win: $2500. Avg Loss: $1000. Profit Factor: 2.8. Expectancy: $625 per trade.

Failure Conditions

Strategy Fails: Global economic slowdown. Resolution of supply chain issues.

Psychological Rules

Mental Discipline: Let winners run. Cut losses quickly. Avoid predicting tops.

Advanced Components

Regime Detection: Monitor inflation data (CPI, PPI). Filters: Volume and fundamental news filters. Correlation: Monitor DBC correlation with inflation expectations. MTF Alignment: Weekly, daily charts must align for strong breakout.

Location

Strongest: Periods of high inflation, commodity supercycles. Weakest: Deflationary environments.