Hi guys, hi from Andrea Unger! Today, I’d like to talk about the Metals Market and, more in detail, of Metals futures.
The main futures in the Metals Market are Gold, Silver, Platinum and Copper. These instruments are all very interesting for trading system developers.
In particular, the Gold future is a very good market for traders. It allows for systems of different kinds, including trend-following, countertrend and bias strategies. In particular, a bias approach can actually offer some very interesting opportunities.
So, Gold is one of my favourite instruments to trade with trading systems. Silver is also very good, even though it’s much more nervous compared to Gold, so finding a good model that fits Silver is harder.
If you’ve just started developing systems, my advice is that you start with Gold and forget about Silver. Actually, Silver is a very expensive market that has sudden and strong moves. Stops that are wide enough to face this market have higher chances of being hit.
Silver is a market that can cause you a certain degree of frustration, when you develop systems on it. This is the reason why I advise against using it at the beginning. Certainly, Gold would be a better choice.
Platinum, too, could be taken into consideration, as it is becoming more and more interesting year after year. The only drawback on Platinum is that it’s highly correlated to Gold. So, if you have a model and apply that model to Gold, it will be useless to add the same model on Platinum in your portfolio, because, by doing that, you would actually overexpose yourself to a similar move. So, at some point you’ll have to choose between the two.
On the other hand, the moves of Copper show a sort of inverted correlation to those of Gold, at least in the short-term. Copper is also interesting and responds well to countertrend, mean-reverting strategies. It’s also possible to use trend-following systems on it, although its moves are very sudden and explosive.
Most importantly, the moves of Copper often end up with a huge retracement, and that’s the reason why I mentioned the counter trends. Rebounds can follow excessive moves, so you can take advantage of both. So, when you start developing on Copper, try to manage your position in the best possible way. Investigate what the best way to manage the position could be, because this market offers incredible opportunities. However, it’s also a very nervous market, so you have to be pretty much skilled to trade it.
For sure, you can start with Gold. Then, you can build systems on Platinum and Copper. Finally, when you have gained enough experienced, you can work on Silver.
On intraday, the stop-loss of Gold should be at least $1,000; however, $1,500-2,000 are certainly better. Platinum is similar and Copper can be traded with stops starting from $700-800. These stops are related to the way in which each market moves. Using tighter stops on them would make you waste your strategy, because you wouldn’t adapt anything to the way that market moves.
In case you really love Gold but you want to dedicate a lower level of risk, you could consider trading Micro Gold instead of Gold. However, don’t use Mini Gold, because there isn’t much liquidity. Micro Gold is much better and is a good market to start with, so, if you have a smaller capital, you could choose that one.
That’s it! Stay tuned for other markets!
Ciao from Andrea Unger!