Commodity/Equity Correlation Trade

Entry Logic

• Long entry: Industrial commodities like copper (JJC) are in a strong uptrend, signaling global growth. Go long equities (SPY).
• Short entry: Copper is in a strong downtrend, signaling a global slowdown. Go short equities.
• Confirmation: A sustained trend in the commodity price.
• Timeframe: Daily chart.
• Location: Any.
• Market Condition: A clear trend in industrial commodities.

Exit Logic

• Profit Target: 3R.
• Scaling Out: Not recommended.
• Trailing Stop: Trail a stop below the 50-day moving average.
• Signal Failure: If the commodity price reverses trend.
• Opposite Signal: Not applicable.
• Time Expiration: Hold for several weeks or months.
• Momentum Loss: If the commodity trend stalls.

Stop Loss Structure

• Hard Stop: A 6% stop loss.
• Soft Stop: If the correlation breaks down.
• Max Dollar Loss: $600 per trade.
• Max Percent Loss: 3% of account.
• Structural Stop: Below a major swing low.

Risk Management Framework

• Risk Per Trade: 3% of account.
• Daily Limit: Not applicable.
• Weekly Limit: Not applicable.
• Max Drawdown: 20%.
• R:R Requirement: Minimum 2:1.

Position Sizing Model

• Sizing Approach: Fixed fractional.
• Volatility Adjustment: Not a primary concern.
• Conviction Sizing: Not recommended.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions: A clear trend in a key industrial commodity.
• Setups: The correlation must be historically reliable.
• Instruments: SPY, JJC (Copper ETN).
• Time Restrictions: Not applicable.
• Chop/News Avoidance: Be aware of major economic data from China.

Context Framework

• Trend Direction: Determined by the commodity trend.
• VWAP Relationship: Not applicable.
• MA Relationship: Use the 50-day and 200-day moving averages.
• Range Location: Not applicable.
• Higher TF Alignment: The weekly chart should confirm the trend.

Trade Management Rules

• Breakeven: Move stop to breakeven at 2R.
• Scale Out: Not recommended.
• Add Size: Not recommended.
• Fast vs Slow Moves: This is a long-term position trade.

Time Rules

• Optimal Window: Not applicable.
• Times to Avoid: Not applicable.
• Session Notes: A macro, position trading strategy.

Setup Classification

• A+ Setup: A strong, multi-month trend in copper.
• A Setup: A good, established trend.
• B Setup: A choppy or weak trend.
• C Setup: No clear trend.

Market Selection Criteria

• Instruments: Broad market ETFs and commodity ETNs.
• Volume: High.
• Volatility: Any.

Statistical Edge Metrics

• Win Rate: 60%.
• Avg Win: 3R.
• Avg Loss: 1R.
• Profit Factor: 1.8.
• Expectancy: 1.2R per trade.

Failure Conditions

• Market Conditions: When the correlation breaks down.
• Specific Scenarios: A supply-side shock in the commodity that is not related to global demand.

Psychological Rules

• Mental Discipline: Requires a long-term, macro perspective.

Advanced Components

• Regime Detection: The strategy is based on detecting the global growth regime.
• Filters: Not needed.
• Correlation: The core of the strategy.
• MTF Alignment: Weekly and monthly charts are important.

Location

• Strongest: During clear global growth or recession cycles.
• Weakest: In sideways, uncertain markets.