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CCI Trading Strategy
Despite being called the Commodity Channel Index (CCI) this indicator is not just for commodities. It can be used for all markets. The CCI is an indicator which oscillates back and forth, above and below zero. It can be used in multiple ways; here are two strategies that utilize it.
Basic CCI Strategy
The developer of the CCI, Donald Lambert, created a basic strategy for the indicator.
When the CCI moves above +100 it means the price is trending strongly, and therefore triggers a buy signal. The trade is held until the CCI drops back below +100.
When the CCI drops below -100 a strong downtrend is in place, and therefore triggers a short sell (put) signal. The short trade is help until the CCI rallies back above -100.
Entries could also be used with binary options, although some testing and monitoring of volatility would be required to estimate the ideal expiry time for various financial instruments.
Figure 1 shows this basic strategy applied to a 5-minute stock chart.
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Figure 1. Apple (AAPL) 5-Minute Chart with CCI Trades
In the example above the strategy worked well, although it can be prone to triggering false signals. Therefore, there is another variation to the strategy. Some traders may prefer the simplicity of the first strategy and choose to make their own adjustments to it if they wish. Other may prefer the next strategy which is a little more complex but may provide better entry points.
“Double Time” CCI Strategy
The double time strategy uses two timeframes; a longer time frame to establish the trend and a shorter time frame to spot pullbacks.
Figure 2 shows the same trading day in Apple, except using a 15 minute chart.
Just after the open the CCI moves above +100 and stays above it for the next several hours.
Because the CCI is above +100 on the 15-minute chart (longer time frame), that means we are only looking for long/buy entry points.
To find the entry points we use a shorter time frame, such as a 1-minute chart.
A signal occurs on the 1-minute chart when the CCI moves below -100 and then crosses back into positive territory (zero line).
Remember the main trend is up as shown by the 15 minute being above +100. We use the 1-minute chart to find pullbacks or oversold conditions in that longer-term trend. We then use those pullbacks to buy. When the CCI on the 1-minute chart moves below -100 it indicates a pullback. When the CCI (on the 1-minute chart) moves back above 0 (zero line) it indicates the pullback has ended and the trend is resuming.
Figure 3 shows the entries into the longer-term uptrend using the 1-minute chart.
The entries using this strategy do fairly well at picking low points before the trend resumes. The entries are more favorable than using the basic strategy.
Use the 1-minute chat to also exit trades. Exit a trade after it crosses above +100 on the 1-minute chart and then moves below the zero line.
Figure 4 shows the exits, marked with vertical on the price charts.
If the CCI is below -100 on the 15-minute chart, that means we would only look for shorting/put entry points.
A signal occurs on the 1-minute chart when the CCI moves above +100 and then crosses back into negative territory (zero line). Exit when the 1-minute CCI moves below -100 and the crosses back into positive territory (crosses above zero line).
Tying it Together
The strategy is not designed for precise timing, which means if you are trading binary options you will need to test out the best expiry time to use with the strategy, based on the instrument’s (stock, forex pair, commodity, etc) volatility.
I have made the rules fairly strict, in that you only take long positions if the 15-minute chart is above +100. You may wish to relax this, and take longs if the 15-minute CCI is above 0. Similarly, I originally said only take shorts if the 15 minute CCI is below -100. If you find it prudent to do so, you may take wish to trade shorts as long as the 15 minute CCI is negative.
If you are trading traditional markets the strategy doesn’t utilize a stop loss–entries and exits are all based off the indicator. This exposes a trader to potentially large losses on a quick move. Therefore it is recommended a trader employ some sort of stop loss order. For example, with longs place a stop just below a former swing low in price. For short, place a stop just below a former swing high in price.
Test out the strategy before implementing it and come up with personal guidelines on how to employ the strategy if the concept of it appeals to you.
Binary Options Trading with CCI Indicator
The Commodity Channel Index (CCI) was developed by Donald Lambert, an investment analyst, in the late 1970’s. Since then it has been successfully used by lots of brokers and traders with those trading binary options among them. This investment analysis tool is considered to be a good indicator of market trends and greatly helps an investor to find a trade to be worth getting into on the basis of the identified market trend.
CCI is the tool possible to use in order to identify trends across a broad range of markets. Such type of indicators is known as an oscillator as it quantifies the difference of a security asset price from its moving average.
The Commodity Channel Index has a tendency to be abnormally high when an asset price significantly exceeds its average value and fairly low against the backdrop of an asset price to be far below its average value. This investment tool is very useful for a trader when s/he wants to spot assets which seem to be oversold or overbought.
The CCI is also helpful for a trader when s/he tries to identify the valleys and hills in the actual asset value. It also let know that a trend has come to its end or is about to change its direction.
How to use the CCI when identifying a new trend? This usually characterized by movements between levels from -100 and +100 on its plotted chart. If there are any moves outside the range levels either up or down, an asset can be supposed to have a rarely high amount of strength or weakness which can often be followed by a long move of this certain asset. The index shows bullish leaning trend if its value is to the positive side, and a bearish one when its value is on the negative side.
It should be noted that in the case when an investor has a habit to use a zero line and the potential for crossovers exists, the end result can be whipsaws in the chart. And this is the reason why a trader using the CCI index needs to expect the asset to break through +100 level and then long posture for long or wait until it falls below -100 level and then position itself there for the short term In this case the possibility of whipsaw occurrence greatly diminishes.
This index is also useful as the number of time spans a trader wishes to use with it is adjustable to the user’s comfort level. As binary option trading must have an expiration date, the adjustable time frame becomes the core element for the CCI.
CCIplus is a modification of the commodity channel index with smoothing, pivot point indication and analysis mode selection.
The CCIplus has the following settings:
- Market entry and exit point indication
- Point determination selection mode
- Usability settings
It is optimal to use M5-M30.
Testing and refining signals from M1-M5.
A corresponding message is displayed when entering incorrect data. The settings are corrected automatically.
- CCIperiod – standard CCI calculation period setting.
- P_mode – selection of pivot point determination mode.
- NONE – normal CCI mode with no additional settings considered.
- SIMPLE – indication of points when the CCI exceeds the oversold/overbought levels.
- CROSS – indication of points when the CCI crosses the moving in the oversold/overbought zone.
- FAST_LVL – indication of points when the CCI exceeds the oversold/overbought zones, with the moving in the zone and directed towards the intersection.
- SLOW_LVL – indication of points when the moving crosses the oversold/overbought levels.
- PIVOT_CCI – indication of points during a CCI pivot, with the moving in the oversold/overbought zone.
- PIVOT_SMA – indication of points during a moving pivot in the oversold/overbought zone.
- SMAperiod – smoothing period of the normal CCI. At values less than 2 a message is displayed, and the value is set to 2.
- ShowAlert – enable/disable sound and visual notification when a point appears.
- HideCCI – enable/disable display of the normal CCI line. At the value true – in the NONE and SIMPLE modes the indicator line is invisible, a notification is displayed.
Integration in the code
Indices of lines and arrows:
0 – CCI (CCI)
1 – moving CCI (CCI+SMA)
2 – red down arrow (SELL), value = 117
3 – green up arrow (BUY), value = -117
It is not recommended to use a call with the line index 0 in the code. This is equivalent to the iCCI function call.
double x = iCustom(smb,tf,name,cp,pm,sp,sa,hc,li,i);
- string smb – symbol name (NULL – current symbol)
- int tf – timeframe (0 – current timeframe)
- str name – name of the indicator file («CCI+» initial file name)
- int cp – CCI period (default = 14)
- int pm – analysis mode (default = 2. 0=NONE, 1=SIMPLE, 2=CROSS, 3=FAST_LVL, 4=SLOW_LWL, 5=PIVOT_CCI, 6=PIVOT_SMA)
- int sp – smoothing period (default = 6)
- bool sa – display notifications when a point appears (displayed by default, TRUE)
- bool hc – hide the normal CCI line (not hidden by default, FALSE )
- int li -indicator line index (0 – CCI, 1 – SMA, 2 – SELL, 3 – BUY)
- int s – offset by bars (0 = current bar, 1 = previous etc.)
An example of using:
double x = iCustom(NULL,0,»CCI+»,14,2,6,true,false,2,0);
The variable x receives the value from the current symbol, current timeframe, from the CCI+ indicator, with the CCI calculation period 14, in the CROSS analysis mode, outputting point notifications, with a visible normal CCI line, from the index of a smoothed line, from the current bar.
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