Use CCI on the bottom of your trading charts to measure the variation of
a stocks, forex, futures price from its statistical mean. High CCI
above the 0 line show that prices are unusually high compared to
average prices. Low CCI values show that prices are unusually low
compared to average prices.
The CCI is an oscillator that typically fluctuates between –100 and
+100.Forex pair prices are thought to be overbought when CCI moves up
to the + 100 territory. Prices are considered oversold when CCI moves
down into the – 100 territory. The CCI shows overbought and
oversold levels of –100 and +100. CCI extremes correspond to turns in
price as seen on the candlestick chart. The change in price in any of
the markets that you are trading is where traders decide if they want
to buy and sell.
If trading were as easy as taking these automated buy and buy and
sell signals, everyone would be making easy money but that’s not
always how it works. When using an oscillator like CCI or RSI, MACD,
Stochastic. Traders need to take into account two things Trends and
Support and Resistance. In an uptrend, the CCI can produce readings of
+100 or more, but is of little use in identifying tops or potential
turning points for a short entry.
In a downtrend, traders should look for CCI to help identify low
risk shorting trades when CCI shows readings of +100 or higher. The
slope of 20 ma helps show us the prevailing trend is down. The logic
here is the opposite. When CCI is overbought during a downtrend in
price action, this could show that some traders are buying after a
rally in price and in the downtrend.
That buyer is making a mistake and the combination of trend and CCI is
telling us this. So, we want to sell to this buyer and the risk should
be lower, the reward is high, and the trade should end up in the
money.
The CCI was also failing to show strength and the MACD was
confirming a downtrend. The new traders ignored the warning signs of a
failed pattern and listened to the pundits on web sites or trading
chat rooms telling them the market was going to correct.
At the break of the neckline, the novas traders shorted as
experienced traders exited shorts and opened longs. There are several
clues to the failing of the pattern before you would have lost on a
short:
Price stalled before the break of the neckline and even had
a green candle before breaking. This shows buying pressure.
Positive divergence on the MACD and CCI.
Lack of follow-through after the break, small candles have no
momentum, bottom tails are buying pressure.
Profitable trading is not simply about winning frequently
and making big money on each and every trade. Sure if traders do have
a good run of profitable trades this will undoubtedly help with
preserving capitol of their accounts and helps to cover you if you
have a string of losing trades, but in the end, the successful trader
strives for consistent trades at all times. |
