How to Trade Copper: Copper Trading Strategies & Tips
Copper Trading Strategy:
- Copper is a highly tradeable commodity that has clear chart patterns.
- Copper is priced in U.S. Dollars; so the price of the dollar affects the price of copper.
- Trading strategies for copper include technical and fundamental analysis.
- Copper prices tend to do well when emerging markets are growing as demand derives mostly from building and construction.
Why Trade Copper and How Does Copper Trading Work?
One advantage of copper trading is accessibility. Copper is traded through a variety of platforms like futures, options, and on a spread betting platform. You can also gain exposure to copper via a copper ETF (exchange traded fund) like CPER (United States Copper Index Fund) or JJCB (iPath Series B Bloomberg Copper Subindex Total Return ETN).
Copper is a soft malleable metal with properties like gold and silver. It derives most of its demand from building construction, transportation equipment and electronic products. It is a good conductor of electricity and heat and therefore has a wide range of industrial uses, which also leads it to trade in high volumes - a good thing for traders because it leads to reduced spreads and clear chart patterns.
Movements in the price of copper are heavily dependent on demand from emerging market economies like China and India. During times of economic prosperity, these nations demand large quantities of copper, which increases the metal’s price. Alternatively, during economic downturns demand for copper drops, and so does the price. Traders should be aware of this dynamic when trading copper.
Many copper traders use technical or fundamental analysis to inform their trading strategy which helps a trader forecast whether the price of copper will rise or fall. Once a trader is confident in their forecast, he/she can buy or sell copper in an attempt to profit from a movement. In this way, a trading strategy can also help a trader to manage their risk, identify buy and sell signals in the market and set reasonable take-profit and stop-loss levels with a positive risk to reward ratio.
Copper trading hours
Copper trades on the CME Globex and CME ClearPort: Sunday – Friday 6:00 p.m. – 5:00 p.m. (5:00 p.m. – 4:00 p.m. Chicago Time/CT) with a 60-minute break each day beginning at 5:00 p.m. (4:00 p.m. CT)
How to Trade Copper using Technical Analysis
Traders who use technical analysis will often have a different trading strategy based on the market condition. Market conditions refer to whether a market is trending or in consolidation. A professional trader will match his/her strategy to the current market condition.
The chart below shows copper in an uptrend on a daily chart. A trending market is defined as a market consistently reaching for new price extremes. Traders could use a copper trading strategy that incorporates the use of oscillators or trend lines to look for buy and sell signals. There are other effective indicators that traders can also use to look for buy or sell signals that include, amongst others, moving averages, slow stochastic, and the MACD (moving average convergence divergence).
A consolidating market will require a different strategy when trading copper. A consolidating market is identified as a market that is currently range-bound. In a consolidating market the trader will either look to sell copper at a previous high (resistance level) or to buy copper at a previous low (support level). The trader could then look to exit the market at the other end of the range.
Consolidating markets will eventually break out of their range so it is important for traders to manage their risk uses stop-losses. The chart below shows copper on a four-hourly chart during consolidation and eventually breaking out to the downside (orange cross). A trader would look the buy copper when it reaches the green circles and take-profit when the price reaches the upper range (red circles) or to sell when the price reaches for the red circles of the range and look to exit the trade when the price reaches for the green circles.
Copper Trading Tips for Beginners and Advanced Copper Traders
- Traders should first identify the current market condition and then apply the appropriate copper trading strategy.
- Copper is priced in U.S. dollars, so traders should be aware of movements in the U.S. Dollar.
- Demand from emerging markets could drive the price of copper in the longer run so traders must be aware of the growth prospects from emerging markets like China, India, Brazil and others.
- Risk management plays an important role in trading copper. We recommend risking less than 5% of capital on all open trades.
- Start ahead of the rest and read our Traits of Successful Traders guide to avoid making the number one mistake new traders make!
Resources to Help You Trade the Markets
For relevant technical and fundamental analysis see our copper market data page.
The copper price generally follows the state of the world-wide economy.
To monitor economic health, use our economic calendar to keep up to date with important market-impacting economic data.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.