Capstone: Build and Test Your Own Commodity Trading Plan

A commodity trading plan is a written rulebook that says which markets you trade, how you enter and exit, how much you risk, how you handle rolls and reports, and how you will judge whether the plan works. In this capstone you build one step by step, test it on history, paper trade it and set objective rules for going live at small size. The aim is not a perfect system but a plan you understand, have tested and can follow.

Step 1: goals and constraints

Write down the facts of your situation:

• Capital you can afford to risk, separate from living money.
• Time: for example, 30 minutes after each daily close.
• Instruments: micro futures, CFDs or both, and your broker's regulator.
• Rules where you live: tax, foreign exchange and broker rules change, so check them for your country.
• Time zone: in Pakistan, US reports land in your evening; plan your decision window accordingly.

Step 2: choose your universe

Pick 8 to 15 liquid markets across at least four sectors, using the criteria from the portfolio lesson. Write down for each: instrument, contract or lot size, point value, trading hours and roll schedule.

Sector	Markets (example)
Metals	Gold, silver, copper
Energy	WTI crude, natural gas, heating oil
Grains	Corn, soybeans, wheat
Softs	Coffee, sugar, cocoa
Livestock	Live cattle

Step 3: write the strategy rules

Here is an example trend plan based on the trend-following lesson. Use it as a starting template, not as a recommendation.

• Data: daily settlement prices, roll-adjusted continuous series for signals.
• Long entry: the daily close is above the highest close of the previous 55 days.
• Short entry: the daily close is below the lowest close of the previous 55 days.
• Initial stop: 2 x ATR(20) from entry.
• Exit: the daily close crosses the 20-day lowest close (for longs) or highest close (for shorts), or the stop is hit.
• Execution: orders placed after the close and filled at the next session's open.
• Rolls: roll positions a set number of trading days before first notice or last trading day using a calendar spread, and move stops by the spread.

Write rules so precisely that another person could follow them and get the same trades.

Step 4: sizing and risk limits

• Risk per trade: 0.5% of current equity, sized from the stop distance and point value as in the position sizing lesson.
• Rounding: always round down; skip if the minimum size risks more than 1.5 times the target.
• Sector cap: 1.5% open risk per sector.
• Total cap: 5% open risk.
• Circuit breakers: halve risk at a 10% drawdown from peak; stop new trades and review at 20%, as in the risk of ruin lesson.

Step 5: event and operational rules

• No new entries within 15 minutes of EIA, USDA, US CPI or Fed releases in affected markets.
• Before top-tier events, cut the affected market's risk to half, or hold none.
• Keep a weekly calendar in your local time.
• Have a backup plan if your broker's platform fails: the broker's phone desk number, and stops already placed in the market.

Step 6: set pass and fail criteria first

Before running any test, write down what "good enough" means. For example:

• profitable after realistic costs, and still profitable with costs doubled;
• several hundred trades across the universe;
• profitable in both the design period and the out-of-sample period;
• maximum drawdown you could live with, such as no worse than 25%;
• no single market providing most of the profit.

These are examples; choose your own, but choose them before you see results.

Step 7: backtest honestly

Follow the backtesting lesson: realistic fills, slippage, fees and roll costs; conservative handling of gaps and limit moves; results by market, sector, side and year; a fixed out-of-sample period. Compare your approach with the method on the DanioX commodity backtest page and the methodology page, but run your own numbers; another site's results are not your results.

Step 8: paper trade

Run the plan on paper or at tiny size for at least a few months, or until you have a meaningful number of signals. Record your intended fills and the real market prices. Check:

• Did your fills match the backtest assumptions?
• Did you follow every rule, every day?
• Did rolls, events and weekends go as planned?

Step 9: go live small, scale by rules

Start at a fraction of your planned risk, for example a quarter. Write down when you will increase size, such as after 30 trades with rule-following above 95% and results within the range the backtest suggested. Never increase size because of a recent winning streak alone.

A worked trade, start to finish

Measuring every trade in R lets you compare live results with the backtest regardless of account size.

Step 10: review on a schedule

• Weekly: rule-following rate, upcoming events, open risk.
• Monthly: live statistics in R versus the backtest; correlation check.
• Yearly: full review of the universe, costs and rules. Change rules only through the same test process, never in the middle of a drawdown.

Your one-page plan

Markets:      gold, silver, copper, WTI, natural gas, heating oil, corn, soybeans,
              wheat, coffee, sugar, cocoa, live cattle
Data:         daily settlements, roll-adjusted; signals after the close
Entry:        close beyond 55-day highest/lowest close
Stop:         2 x ATR(20); exit on 20-day opposite close
Size:         0.5% of equity per trade, round down
Limits:       1.5% per sector, 5% total, -10% halve risk, -20% stop and review
Rolls:        set days before FND/LTD, calendar spread, shift stop
Events:       no entries 15 min around EIA/USDA/CPI/Fed; half risk before top-tier events
Review:       weekly rules check, monthly stats vs backtest, yearly full review

You have now covered the whole path, from what a commodity is to running a tested, risk-controlled portfolio. Compare your plan's signals with the live DanioX commodity signals as a cross-check, and keep learning from your journal.