CCI Trade is a forex strategy based on Commody Channel Index. CCI is an indicator that is good for measure of momentum and helps us to optimize best entries in the activity of trading on the financial markets.
CCI (Commodity channel Index is an oscillator (mathematical algorithm). CCI is an unbounded range, typically when your level is above of +100 considered to be overbought, when your level is below -100 is oversold.
We will use these levels as our trigger points as we put a twist on the traditional interpretation of CCI. We actually look to buy if the currency pair makes a new high above 100 and sell if the currency pair makes a new low below -100. In “Trade CCI Momentum” we are looking for new peaks or spikes in momentum that are likely to carry the currency pair higher or lower. The thesis behind this setup is that much like a body hurtled in motion will remain so until it’s slowed by counterforces, new highs or lows in CCI will propel the currency further in the direction of the move before new prices finally put a halt to the advance or the decline.
Trade CCI Momentum Buy
1. On the daily or the hourly charts place the CCI indicator with standard input of 20.
2. Note the very last time the CCI registered a reading of greater than +100 before
dropping back below the +100 zone.
3. Take a measure of the peak CCI reading and record it.
4. If CCI once again trades above the +100 and if its value exceeds the prior peak reading,
go long at market at the close of the candle.
5. Measure the low of the candle and use it as your stop.
6. If the position moves in your favor by the amount of your original stop, sell half and
move stop to breakeven.
7. Take profit on the rest of the trade when position moves to two times your stop.
Trade CCI Momentum Sell
1. On the daily or the hourly charts place the CCI indicator with standard input of 20.
2. Note the very last time the CCI registered a reading of less than -100 before poking
above the -100 zone.
3. Take a measure of the peak CCI reading and record it.
4. If CCI once again trades below the -100 and if its value exceeds the prior low reading,
go short at market at the close of the candle.
5. Measure the high of the candle and use it as your stop.
6. If the position moves in your favor by the amount of your original stop, sell half and
move the stop on the remainder of the position to breakeven.
7. Take profit on the rest of the trade when position moves to two times your stop.
In this daily chart of the EUR/USD pair we see that the former peak high above the CCI +100 level
was recorded on September 5, 2005, when it reached a reading of 130.00. Not until more than three
months later on December 13, 2005, did the CCI produce a value that would exceed this number.
Throughout this time we can see that EUR/USD was in a severe decline with many false breakouts
to the upside that fizzled as soon as they appeared on the chart. On December 13, 2005, however,
CCI hit 162.61 and we immediately went long on the close at 1.1945 using the low of the candle
at 1.1906 as our stop. Our first target was 100% of our risk, or approximately 40 points. We exited
half the position at 1.1985 and the second half of the position at two times our risk at 1.2035. Our
total reward-to-risk ratio on this trade was 1.5:1, meaning that if we were merely 50% accurate,
the setup would have positive expectancy. Note also that we were able to capture our gains in less
than 24 hours as the momentum of the move carried our position to profit very quickly.
For those traders who do not like to wait nearly a quarter of a year between setups, the hourly chart
offers far more opportunities of the “Trade CCI Momentum” setup. It is still infrequent, which is one of the reasons that makes this setup so powerful (the common wisdom in trading is: the rarer the trade the better the trade). Nevertheless it occurs on the hourly charts far more often than on the dailies.
In the above example, we look at the hourly chart of the EUR/USD between March 24 and March
28 of 2006. At 1pm on March 24, 2006, the EUR/USD reaches a CCI peak of 142.96. Several
days later at 4am on March 28, 2006, the CCI reading reaches a new high of 184.72. We go long
at market on the close of the candle at 1.2063. The low of the candle is 1.2027 and we set our stop
there. The pair consolidates for several hours and then makes a burst to our first target of 1.2103
at 9am on March 28, 2006. We move the stop to breakeven to protect our profits and are stopped
out a few hours later, banking 40 pips of profit. As the saying goes, half a loaf is better than none,
and it is amazing how they can add up to a whole bakery full of profits if we simply take what the
market gives us.
Here is an example of a short in USD/CHF trade on the dailies that employs this approach in
reverse. On October 11, 2004 USD/CHF makes a CCI low of -131.05. A few days later, on October
14, 2004, the CCI prints at -133.68. We enter short at market on the close of the candle at 1.2445.
Our stop is the high of that candle at 1.2545. Our first exit is hit just two days later at 1.2345. We
stay in the trade with the rest of the position and move the stop to breakeven. Our second target is
hit on October 19, 2004 - no more than five days after we’ve entered the trade. Total profit on the
trade? 300 points. Our total risk was only 200 points, and we never even experienced any serious
drawdown as the momentum pulled prices further down. The key is high probability, and that is
exactly what the “Trade CCI Momentum” setup provides.
At 9pm on March 21, 2006, EUR/JPY recorded a reading of -115.19 before recovering above the
-100 CCI zone. The “Trade CCI Momentum” setup triggered almost to the tee five days later at 8pm on March 26, 2006. The CCI value reached a low of -133.68 and we went short on the close of the
candle. This was a very large candle on the hourly charts, and we had to risk 74 points as our entry
was 140.79 and our stop was at 141.51. The majority of the traders would have been afraid to enter
short at that time, thinking that most of the selling had been done. But we had faith in our strategy
and followed the setup. Prices then consolidated a bit and trended lower until 1pm on March 27,
2006. Less than 24 hours later we were able to hit our first target, which was a very substantial 74
points. Again we moved our stop to breakeven. The pair proceeded to bottom out and rally, taking
us out at breakeven. Although we did not achieve our second target overall, it was a good trade as
we banked 74 points without ever really being in a significant drawdown.
Finally, our last example shows how this setup can go wrong and why it is critical to always use
stops. The “Trade CCI Momentum” setup relies on momentum to generate profits. When the momentum fails to materialize, it signals that a turn may be in the making. Here is how it played out on the hourly charts in AUD/USD. We note that CCI makes a near-term peak at 132.58 at 10pm on May 2, 2006. A few days later at 11am on May 4, 2006, CCI reaches 149.44 prompting a long entry
at .7721. The stop is placed at .7709 and is taken out the very same hour. Notice that instead of
rallying higher, the pair reversed rapidly. Furthermore, as the downside move gained speed prices
reached a low of .7675. A trader who did not take the 12-point stop as prescribed by the setup
would have learned a very expensive lesson indeed as his losses could have been magnified by a
factor of three. Therefore, the key idea to remember with our “Trade CCI Momentum” setup is - “I
am right or I am out!
How can you improve this forex strategy?
adding 2 exponential moving averages.
The new setup of this strategy is as follows (h1 time frame)
CCI 20 periods,
EMA 9 periods ,
EMA 21 periods.
H4 and daily time Frame setup is:
CCI 20 periods,
EMA 6 periods,.
EMA 13 periods.
Buy
The same previous rules but with conditions That 9EMA> 21 EMA.
Sell
The same previous rules but with conditions That 9EMA< 21 EMA.
To see example
 |
| Trade CCI Momentum |
For a more aggressive trading this strategy can be summarized in the following way:
Buy
CCI> 100 and 9EMA> 21EMA;
Sell
CCI <-100 and 9EMA <21EMA
 |
trade CCI Momentum
|
