Series Vol. 18 , 13 September 2023
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The range breakout strategy is a momentum strategy that involves taking a long position in a security when its price exceeds a predetermined range and a short position when the price falls below the range. Previous research has indicated that this strategy is well-suited to the price volatility patterns observed in commodity markets. Considering the significant expansion and di-versification of China's commodity market in recent years, we decided to apply the range breakout strategy to China's commodity futures market and assess its feasibility and profitability. Our research utilized historical performance data from the Zhengzhou Commodity Exchange and Shanghai Future Exchange between September 1, 2012, and July 31, 2022, obtained from CSMR as our database. We focused on the top 27 most liquid commodity futures categories to construct our back-testing portfolio. Our approach centered around using volatility as the basis for entry signals in the range breakout strategy and signal weighting as a portfolio construction method. The results demonstrate that the range breakout strategy, based on volatility, is highly effective in China's commodity futures market. This research con-tributes to the enrichment of optimization strategies in China's Future Market. Furthermore, we explored the use of cross-commodity hedging and the Average True Range (ATR) indicator to further enhance the strategy. Although no practical improvements were discovered beyond the original strategy, this exploration offers valuable insights for future research.
range breakout, commodity futures, Chinese future market, hedge funds
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The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.