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Best Forex CCI Trading Strategy (Commodity Channel Index Explained For Beginners) - YouTube
Channel: The Secret Mindset
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Hello guys, in this video i will reveal an
effective trading strategy involving the commodity
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channel index, strategy which i mainly used
when I鈥檓 trading stocks.
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The CCI is an oscillator used in technical
analysis in order to measure the variation
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of a stock鈥檚 price from its statistical
mean.
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High values indicate that prices are unusually
high compared to average prices.
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Low values of the CCI indicate that prices
are unusually low.
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CCI is one of the most popular indicators
and traders always tweak the settings of the
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indicator, depending on their favorite time
frame or trading style.
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Most of them use the standard settings, CCI
set on a 21 period.
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CCI of 14-period and 50-period are also popular
among traders.
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Our CCI trading strategy involves 3 conditions
to be met.
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Here鈥檚 the first condition: the CCI must
reach overbought or oversold conditions twice.
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Commodity channel index is used by many people
in a wrong way.
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When the CCI technical indicator hits or exceeds
values above -100 or 100, many traders interpret
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this as a signal to enter counter trend positions,
in response to overbought and oversold conditions
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on the market.
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But sometimes the prices can stay a long time
in the overbought or oversold areas and during
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that time they can continue to go higher or
lower.
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That鈥檚 why we need the CCI to reach overbought
or oversold conditions twice.
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Also, we will use values of 200 and -200 for
these levels, to eliminate most of the noise.
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In this NVidia chart, observe the CCI reaching
oversold conditions twice, respectively -200
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level.
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Here鈥檚 the same condition met on an exon
mobile chart.
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The CCI reached -200 level once, and another
time 2 weeks after.
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Most people would have taken a long signal
the first time the CCI reached oversold conditions,
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but this is a sure way to lose money on the
long run.
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It鈥檚 better to be conservative and wait
for the second move in oversold territory.
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But this isn鈥檛 enough.
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We need something else to happen on our charts.
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Here鈥檚 our second condition.
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We need a regular divergence between the CCI
and the price.
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A regular divergence is characterized by higher
high prices and lower CCI indicator values
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during an uptrend and lower low prices plus
by higher CCI values, during a downtrend.
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Most novice traders search for CCI divergences
on the charts and automatically interpret
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this as a valid signal to enter the market.
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Just because a CCI divergence appears on a
chart, that doesn鈥檛 mean that you should
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automatically enter a reverse position.
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So, we need the CCI to reach -200 or 200 level,
but it also has to form a divergence.
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In this Verizon Communication chart, we spot
a regular divergence on the CCI, but we also
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take into account the first condition, respectively
the indicator must reach the -200 level.
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Here鈥檚 the same 2 conditions met on an AT&T
chart.
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The CCI reached the -200 level and formed
a regular divergence.
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By now, I鈥檓 sure you noticed that i only
showed examples with the CCI in oversold conditions
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and none of the examples were on the overbought
side.
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This is because when I鈥檓 trading stocks
I鈥檓 comfortable to trade only long positions,
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on stocks with good fundamentals (mainly dividend
stocks or growth stocks), so i intentionally
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look only for long signals.
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To increase your chances when trading this
strategy, it鈥檚 good to have fundamentals
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on your side.
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I use a stock screener to keep an eye on the
stocks to trade.
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Stock screeners make a trader鈥檚 life a lot
simpler than the old days.
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You still have to do your homework, but you
can set screens to create your watch list
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based on your conditions and it鈥檚 going
to save you a lot of time, especially if you鈥檙e
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monitoring hundreds or thousands of stocks.
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With a stock screener, you have a big advantage.
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I鈥檝e put several stock screeners in the
description, if you want both technical and
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fundamental indicators on your side with this
strategy, check them out.
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Like i said before, you could take signals
when the CCI reaches overbought conditions,
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like this one on the Netflix chart, but from
my experience, the most profitable trades
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are buy entries on stocks with good fundamentals.
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This trade for example, would have brought
some profits eventually, but not without a
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period of consolidation.
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So, take my advice and look only on the lower
side of the CCI and ignore overbought signals.
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Now, for the third conditions, we want to
see a clear trend line break in order to enter
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the market.
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We want to see the CCI reaching -200 level,
we want a divergence between the CCI and the
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price, but we also want a trend line break,
to confirm the switch in momentum.
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Let鈥檚 see all the conditions met on the
Netflix stock.
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First, the CCI reaching oversold condition
twice.
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Then we see the regular divergence.
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After that, we simply wait for a trend line
breakout.
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After the price consolidated above the trend
line, we can safely enter long on the market.
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The same pattern on Walt Disney stock.
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The stock price reached oversold levels twice,
the CCI indicator formed a divergence followed
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by a trend line breakout.
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As you can see, we did experienced some heat,
because the price consolidated for a while
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and retested the previous low, before it finally
took off.
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So, don鈥檛 expect a sweet ride all the time,
we just have to put out stop orders accordingly
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and follow our initial plan.
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Here is the IBM stock.
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Here鈥檚 the -200 level hit twice, the divergence
and the trend line breakout.
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Don鈥檛 be afraid to enter the market when
you see the CCI reaching overbought conditions
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because this is a classic beginner mistake.
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Another great trade on the visa stock.
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By now, i hope you trained your eyes to spot
for this CCI pattern.
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The oversold level hit twice, the regular
divergence and also the trend line break.
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You might wonder why we have to wait for the
breakout to enter the market.
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In this example, if we could have entered
way sooner and obtained bigger profits.
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But you see, this was a fortunate case, many
times the market decides to search for lower
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lows and go for the third time in oversold
area.
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By waiting for the trend line breakout, we
protect our capital and increase our chances
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for a true momentum shift.
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Look at this example, on the Procter&Gamble
stock.
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Here we have our first 2 conditions met, but
we didn鈥檛 have the trend line breakout,
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so this was a no go trade.
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Here, we have all conditions met and we have
a valid breakout.
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But as you can observe on the chart, the market
turned against our position and we lost this
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trade.
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But even if we lost the trade, this stock
still had potential for a good trade.
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Which came few weeks later, when we saw the
oversold level once again, the divergence
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and another trend line break.
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This time, the stock took off and we managed
to recoup our losses for the previous trade
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and recorded some extra profit.
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Like i said before, if you want to trade stocks
and increase your chances when you use this
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strategy, a stock screener is one of the most
important tools in your arsenal.
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It will help you sort through thousands of
stocks to find only those that match specific
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criteria.
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This way, you get to choose between stocks
and trade only the signals that have the greatest
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potential.
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This strategy is designed for timeframes higher
than 4 hours charts and for stock market,
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but I鈥檝e also recorded good results on forex
market also, on lower timeframes.
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If you got any value from this, please consider
subscribing to our channel, share and like
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this video, as it would help us a lot in the
future.
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Until next time.
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