This post delves into the fourth and the last short term variable, the Bullish or Bearish setup that forms on the sister commodities. This is applicable only to metals. For example, if we were selecting a trade on Zinc, we need to look at the setup on 2H chart that has formed/ forming on Copper and Aluminium, the sister commodities for Zinc. Similarly, for selecting a trade on Copper, we need to look at Zinc and Aluminum.
The basic premise of this variable is that we should not go against the general trend in metals as a class, if we were evaluating a trade in one of the metals. The rules are based on common sense and simple to understand.
Please look at the table below to understand the rules on how to evaluate this variable for a Bullish Setup on Copper with all possible permutations and combination for setups on sister commodities, Zinc and Alumnium.
Setup on Copper - Main Commodity | Setup on Zinc - Sister Comdty 1 | Setup on Alum- Sister Comdty 2 | Value of Variable |
Bullish | Bullish | Bullish | Very Strong |
Bullish | Bearish | Neutral | |
Bullish | Neutral | Strong | |
Bearish | Bullish | Neutral | |
Bearish | Bearish | Very Weak | |
Bearish | Neutral | Weak | |
Neutral | Bullish | Strong | |
Neutral | Bearish | Weak | |
Neutral | Neutral | Neutral |
So for a Bullish setup that has formed/ forming on Copper, we should be looking for the setups on both sister commodities to be Bullish or one of them to be Bullish and the other Neutral, for a strong confirmation of the trade. The same logic can be extrapolated for Zinc and Aluminium when the trade setup is Bullish. The reverse logic applies when the trade setup is Bearish. Hope this example makes it clear.
With this, we have concluded our discussion on all the variables of trade selection, long term as well as short term. Click on "Next Post" to see how all these variables come together in the form of a Tabular Trade Selection Tool to select a trade objectively.
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