Someone will say that trading only on one indicator is the height of recklessness. After all, no indicator is universal and has weak spots. Therefore, it is recommended to use several diverse instruments: patterns, trend indicators and oscillators. In part, we can agree with this, but it’s rather a matter of professionalism and experience. You need to be able to see the approach of the right moment in time, and even one indicator can make a profit. In this review, we will clearly show you this with the example of the basic instrument CCI (Commodity Channel Index).
Trading rules for the commodity channel index
CCI is an oscillator that allows you to determine overbought and oversold levels of the market. Do not confuse it with the stochastics. The commodity channel index is more similar to the Bollinger Bands or Keltner Channels. The essence of the indicator is that after certain calculations a value is obtained, which is zero as a reference point. As soon as the price reaches its maximum or minimum values, the CCI goes beyond its basic levels (-100; 100). The trader does not see (cannot visually assess) how far the price has moved from its local highs or lows. The CCI formula provides a comparison of the current price with values in past periods (the formula itself is much more complicated).
The proposed strategy will deviate slightly from the classical understanding (-100 – oversold, +100 – overbought). We will open a position when the Index of the commodity channel leaves the extreme zones after the price has entered them.
- currency pair – EUR / USD;
- timeframe – M30;
- CCI settings: period = 12, apply to = close, levels 200, -200.
Levels are specifically enhanced to get accurate signals. And let the positions rarely open, the risks are minimized.
The condition for opening a long position is one: CCI has dropped below the level of -200, but not lower than -300. On the next candle we open a deal and insure it with a stop of 20 points. After 10 points have been earned, the position is moved to breakeven and insured by trailing.
A short position is opened under the same conditions, only at levels between 200 and 300. The trading strategy for the Commodity Channel Index is working, which you can see in historical testing. In the future, it makes sense to optimize it, keeping track of which days or time of day the most accurate signals appear. Share your trading results in the comments!