← Back to Blog · 2026-09-02 · 4 min read · Strategy Case Study

If you were trading Chinese commodity futures in 2021, you probably felt a mix of awe and frustration. It was the year of the great commodity squeeze. Thermal coal went on a historic run before exchange interventions cooled it off, and industrial metals saw massive macro-driven trends. For trend-following breakout traders, it should have been a career year. Yet, many retail traders got chopped to pieces.

Why? Because trading a breakout strategy isn't just about buying a new 20-day high. It’s about understanding the instrument you are trading, the specific market mechanics of the exchange, and the friction involved in executing your orders. Today, we are going to do a deep dive into backtesting a classic Donchian-style breakout strategy on the 2021 rebar bull market.

The 2021 Rebar Super Cycle: A Macro Backdrop

To backtest a strategy effectively, you need to understand the market environment. Rebar—the foundational steel reinforcement used in construction—is a bellwether for the Chinese economy. In 2021, a perfect storm hit the market. Post-pandemic infrastructure stimulus drove heavy demand, while aggressive emission reduction policies capped domestic steel output. At the same time, iron ore prices were soaring, squeezing mill margins.

This supply-demand imbalance sent rebar futures on a massive bull run. From early 2021 through the summer, prices roughly climbed from around the 4,000 RMB/ton mark to peak somewhere above 6,000 RMB/ton in the third quarter before pulling back. It was a textbook trending market, punctuated by sharp, aggressive pullbacks that punished late buyers and weak hands.

Know Your Instrument: Rebar Contract Specs

If you are a global retail trader looking to trade rebar or other Chinese commodity futures, you cannot apply US equity index logic to your position sizing. You need to know the exact contract mechanics. Rebar futures are listed on the Shanghai Futures Exchange (SHFE).

Because the contract multiplier is 10 tons per lot, a 100 RMB move in the price of rebar equals a 1,000 RMB P&L swing per lot. When you are backtesting, you must calculate your position size based on this multiplier, not an arbitrary percentage of your account. If you risk 1% of a $10,000 account, you need to calculate exactly how many ticks your stop loss represents, and divide your risk budget by that tick value.

The Breakout Strategy Blueprint

For this case study, let’s look at a standard 20-day high breakout strategy, adapted for the Chinese futures trading sessions (which include a day session and a night session).

Entry Rules

• Long Entry: Buy when the price breaks above the highest high of the previous 20 calendar days during the day session. We ignore night session breakouts to avoid gap-up volatility at the open.
• Short Entry: Sell when the price breaks below the lowest low of the previous 20 calendar days. (In a macro bull run like 2021, we would strictly backtest the long side or heavily filter shorts).

Exit and Risk Management Rules

• Initial Stop Loss: Placed at the 10-day low at the time of entry, or 2 ATR (Average True Range) units below the entry price, whichever is tighter.
• Trailing Stop: Exit the position if the price closes below the 10-day low.
• Position Sizing: Risk no more than 1% to 1.5% of total account equity per trade. Given the 10-ton multiplier, a 50 RMB stop loss means a 500 RMB risk per lot. If your account risk budget is 1,000 RMB, you trade 2 lots.

Backtesting Friction in China Futures

Here is where most retail backtests fall apart. They assume perfect fills and infinite liquidity. When you backtest a breakout strategy on the 2021 rebar market, you have to account for the unique friction of Chinese commodity futures.

1. Limit Up and Limit Down Moves: Chinese exchanges implement strict daily price limits. In a screaming bull market, rebar would sometimes hit its upper daily limit early in the session. If your breakout level is hit, but the market is locked limit up, you cannot get filled. Your backtest must assume slippage or missed entries when the market opens beyond the limit threshold.

2. Session Gaps: SHFE rebar trades a day session and a night session. The night session closes, and the market sits dormant until the next morning. Macro news overnight can cause the market to gap significantly at the day session open. If your stop loss falls in a gap, you will experience slippage. Your backtesting software needs to execute stops at the opening price of the next session, not the idealized stop level.

3. Commission and Slippage: Rebar is highly liquid, but commissions still matter. Assume a round-turn commission of roughly 2-5 RMB per lot, plus slippage of 1-2 ticks on market orders. Over a 20-trade backtest, this friction can eat up 10-15% of your gross profit. Factor it in ruthlessly.

Practical Application: Adapting to Correlated Markets

Once you have a working breakout model for rebar, you can apply the exact same logic to trade iron ore. Iron ore (listed on the Dalian Commodity Exchange, ticker: i) is the primary raw material for steel and has a contract multiplier of 100 tons/lot. It is significantly more volatile than rebar.

When backtesting, look at the spread between rebar and iron ore. In 2021, when both were breaking out, it confirmed a systemic macro trend in the Chinese construction sector. If you are running a breakout strategy, taking signals in both markets—while adjusting for the different contract multipliers—can provide a robust, diversified trend-following portfolio. Just remember that iron ore's daily limits and margin requirements differ from SHFE rebar, so your position sizing must be recalculated from scratch.

Breakout strategies are brutal when markets chop, but they are the only way to capture macro moves like the 2021 rebar bull market. The key to surviving the chop is rigorous, realistic backtesting that respects contract specs, session gaps, and exchange rules.

Before you risk live capital on these macro breakouts, you need to see how your system handles real market data and real execution pressure. At XS Select, you can test your breakout strategy on a real-data China futures evaluation starting from $29. Build your system, prove your edge, and trade with confidence.