Advanced CCI Forex Trading Strategy

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Video Transcription:

Hey, traders. Welcome to video 23 of the Advanced Forex Strategies Course. This is Cory Mitchell. In this video we are looking at the advanced CCI trading strategy. We are going to use two timeframes. We’re going to use one longer term and one shorter term so we can mix those up. Brought to you by

Trend trading is where the money is. The CCI provides entries and exits into those trends. Commodity Channel Index is what the CCI stands for. Even though it’s called a commodity channel index, it can be used on all markets. Just using it on its own it can provide a lot of false signals, so we are going to filter it by using a longer term trend and two timeframes. So we are going to get the trend from the longer term timeframe and we are going to get our entry and exit signals from a shorter term timeframe.

The longer term chart should be hourly or longer and then we’d use for example a 5 or 15-minute chart if we were using the hourly as the longer. So we have those two timeframes: hourly, and then a 5 or 15-minute as the shorter. One of the preferred methods, it’s use a daily chart for the longer and then use a four-hour chart or an hourly for the shorter. Another popular combination is the weekly chart and the daily chart. So the weekly chart for the longer, the daily chart for the shorter, and that’s going to provide you with more swing trading type trades because your trades are going to last quite a few days.

Our risk is known at the outset, but our profit isn’t. So our risk/reward is unknown, yet since we are trading with the longer term trends we have the potential for some very big profits when we do catch one of those trending waves.

There’s two types of trades. We have either an uptrend or a downtrend. When the uptrend is in place, when the CCI moves above 100 on your longer term chart, and when you have an uptrend you’re only looking for long positions on the shorter timeframe. So you’d basically ignore anything that says this is a short sell signal. So you’re just looking for the long positions.

The trend is considered up until the CCI touches negative 100 or below. That would be when the trend reverses, and in which case we would no longer be looking for uptrend signals. We would look for downtrend signals.

I should just reiterate. This gives us our longer term. So as long as this has hit above 100, we are looking for only long signals. We then drop down to the shorter timeframe and we buy when the CCI on that timeframe drops below negative 100 and then rallies above it. So in this way we are buying on a pullback during a long term uptrend. This is what tells us this is a long term uptrend, and this is what tells us when to buy.

So we place a stop just below the recent low based on the shorter timeframe, and we exit the trade once the CCI moves above 100 on the shorter timeframe and then drops below it. Or we would just exit all trades if our longer term timeframe turns negative.

For a downtrend, a downtrend is in place when the CCI moves below 100 on the long term chart. In that case, following that signal we are only looking for short positions, and the downtrend is in place on the longer term timeframe until the CCI touches 100 or above. So on the shorter timeframe, sell when the CCI rallies above plus 100 and then drops below it. In this way we are selling and shorting on a pullback during a long term uptrend. This tells us the long term trend is down. This signal gives us that the price is in a pullback right now but that the long term downtrend is going to continue, so we are going to sell on that pullback.

Place a stop loss just above the recent high, exit the trade once the CCI moves below 100 and then rallies above it. So we’ve sold off on the short term timeframe and then it’s starting to rally again, we’re looking to get out. Or exit the trade if the longer term trend turns higher. So we’re in a downtrend. If this occurs where the CCI touches 100 or above on the long term time frame, we’re just going to exit all our short positions.

A few warnings about this strategy. You will need to potentially adjust these levels that I’ve discussed slightly for different pairs you trade. Each pair is different. So 110 or 150 may work better as a trigger level instead of just the generic 100 level. The 100 level is something we use, but for each pair you may need to adjust it slightly, so you’re going to have to do a bit of research on this. This is typically why we like to use it on longer term charts like the weekly/daily combination or the daily/four-hour combination, because it gives you a bit more time to adjust some of these levels, see how the market’s reacting to certain levels. Whereas if your longer term timeframe is an hourly chart and your short term timeframe is a five-minute chart, you may not have enough time to really get to know how these are unless you do a lot of research beforehand, what levels it’s respecting unless you do the research beforehand.

You may also want to try comparing different combinations of the timeframes. The weekly and the daily work well together, but if you use a daily chart as your longer, you’ll need to test out whether the four-hour or the hourly works better for example. Or if you’re using the hourly chart as your longer, does the 5-minute or the 10-minute work better? So each pair is going to be slightly different. I can’t go into what the ideal settings would be for every single pair because this is going to vary by each pair.

We’re just going to go through a few examples and hopefully that gives you a good example of the strategy. I have not calibrated the strategy in any way. We’re looking at the USD/Swiss chart. This is just as it is. If you wanted to adjust the levels, I just have the 100 levels marked off, so if you want to really calibrate this for the pair you would probably have to adjust these levels slightly.

As we can see, the price was moving higher here. It dips below 100. Remember we were on the daily chart. This is our longer term timeframe. So once it’s made that dip below 100, we now consider the downtrend in effect. That downtrend is in effect until the price rallies above plus 100 on that same longer term chart.

So basically this entire area is viewed as a downtrend, simply by looking at the CCI. Yes, we can see that it’s a downtrend based on the price, lower lows, higher highs, but just based on this CCI, once it dropped below 100 it stayed below plus 100 until this point here, at which point there was a potential uptrend.

This is our downtrend area. I have squared it off, just that it makes it easier to see it once we drop down to the . . . I’m going to use an hourly chart. So our downtrend starts right about here. On January 23rd is when we drop below the minus 100. So we can move forward to January 23rd and we can see my box appears here.

The downtrend is in effect so we are looking for only short trades on this timeframe. A short trade occurs when the price rallies above the 100 and then drops back below it.So here is our first signal right here. The price just barely gets above, so we would be looking to go short on this bar here. Basically as soon as we know that this is going to finish below 100, so toward the close of this hourly bar, we don’t have to actually wait for it to close, but once we know that that price is likely to close below the 100 mark we can take our short position.

In this case we would have been stopped out. The price does drop for us, but doesn’t really go that far and the price rallies up and would have stopped us out at our stop right here. So we place a stop just above the recent high where we entered. So if we had entered short on this bar we would have placed a stop just above that bar. Potentially may have even been stopped out on this bar, but if we weren’t we would have been stopped out on this rally here, so I’ve marked a little x there, and we got stopped out. So that’s just our exit.

We know what our risk is. When we get into the trade, we’re placing a stop just above the high. So in this case we’re assuming the price is just going to continue lower. That’s why we put our stop right above this recent high. Depending on where we got in on this bar, we’re looking at about a 15 pip stop there. So, we stopped out of that one. That’s fine. Price doesn’t do anything.

Our next signal occurs here. We rally well above the 100 and then drop below it. Remember, our long term trend is down so we are only looking for short positions. So this signal here doesn’t apply. The price did pop up but we’re only taking trades in the long term direction. Based on our daily chart which we looked at before, the trend is down. So we’re only looking at short positions.

On this one, our signal occurs on this red bar. So once again, as soon as that we can guarantee that the, or not guarantee but we can be reasonably sure that the indicator is going to close above that 100 level, we can take our short position. So likely, it would have been more toward the bottom of this bar. The stop goes above the recent high. So since we were getting in on this as it was falling, the stop’s going to be a bit bigger. We hold that position until the price drops below the negative 100 and then rallies above it.

So in this case, we would’ve gotten out as this bar was popping higher. Once again, once we know that the price is likely to finish above that negative 100 we can look to get out. So we wouldn’t have had to wait for this bar to complete. Once we had had a little bit of a bullish engulfing pattern there we could have looked to cut our loss. And since our entry would’ve been down near the low of this bar, another flat type trade is why we may want to tweak a little bit these levels that we’re watching.

Here’s one that works out a lot better. So we would’ve taken a small loss on that one, but gotten out basically flat on this one. And this one works out a little bit better. Going short right near the top of that move, stop goes just above the recent high, and we hold that position until the CCI drops below negative 100 and then rallies above it. So we would’ve been out in this area here. So just kind of estimating some entry points.

Remember, we can enter anywhere once we have a little bit of confirmation that this entry signal is going to occur, so it’s not a precise entry point. There is what I’m looking for. And likely would’ve got out around there. We do have a bit more downside. This is where it does help to potentially change some of these levels a little bit.

One last one we’ll look at here is another one that we would have been stopped out on. We are looking to go short. In this area here is the price. It comes off this strong rally, looking for more continuation, the trend is down, but we would’ve eventually gotten stopped out as the price doesn’t trigger our exit and doesn’t really drop much either, so that’s why, and we get stopped out here.

So as I said, I didn’t calibrate these or sugarcoat them in any way. We would’ve had one profitable signal, a couple that were stopped out. So fiddling with these levels a little bit and deciding maybe a four-hour timeframe would’ve worked better for signals, because each pair is going to be different.

Back to the daily chart, this is our longer term timeframe where we’re looking for the trends. Here we have this pop above 100, so that indicates that the trend is up, and it’s up until this CCI touches 100 or below. So we are still in an uptrend. It looks like it could last awhile before this CCI drops through. So we’re looking at this starting at approximately starting on May 8th or 9th.

Let’s drop down to an hourly timeframe. Move forward to May 8th or 9th, we can see there is the square that marks off the start of the bull market, and we have some potential trades here. So first one, only looking for long positions remember, so we have the drop below the negative 100 and a rally above it, so we would’ve been looking to get in right about on that bar there. So once we were reasonably sure that the CCI was going to finish above negative 100 we could have gotten in. So likely toward the top of this bar, entry point right about there, and we hold this until the price moves above plus 100 and drops below it. Exit would have been right about there. So a little profitable trade on that one.

A few more signals here. Here we drop back below the negative 100 again and pop above it. So long at this point here, right as that CCI starts to move above 100, long there and we’re out when it drops below plus 100. So we have all this to profit from here on this wave. Another winner here as the price drops below negative 100, rallies above it, price soars above plus 100, and then drops below it, providing our exit out here. So that would have been another profitable one. So it worked a little bit better on the longs.

This was a pretty strong rally as we can see on the daily chart, so it worked out much better on our hourly time frame, but once again, you will need to go through each pair that you’re going to trade with this and decide which timeframes you’re going to use and what your trigger levels will be. So 100 is a very generic starting point, so this video should just give you the basic guide for how you should trade the strategy, but you will need to go through and decide is 110 a better level? Is 130 a better level? Maybe it’s 150 for a volatile pair, and these could be your trigger levels for entries and exits. Or possibly still use the 100 for entries, but if you want to get out a bit sooner you may want to use 150 or something on the exits. That way you’re getting out up here as opposed to waiting for the pullback all the way through the 100 level.

A few adjustments can be made to really fine-tune this strategy a bit more, but it will vary based on pair and also the timeframes that you choose.

The two timeframe approach allows us to enter on a pullback during a longer term trend. That is the power of this strategy. If there is a really strong long term trend in effect and you pick up one of those trades, you can have a very substantial profit on some of those trades. And as we saw on a few other ones, you’ll get stopped out or maybe be more toward the break even level, but by trading with that longer term trend, we have a good chance that every once in a while we’re going to hit one of those massive winners.

Trades are only taken in the direction of the long term trend. This approach can be applied to help determine the trend we use in other strategies. So you can quickly pull out the CCI indicator any time you’re using some of the other strategies to help clarify the trend. If you’re a bit confused about which way it’s going, you can use those 100 levels on a longer term timeframe to help determine that.

Once again, we only ever risk 1% of our account in a pair on a trade. That way even a string of losses won’t significantly draw down our account. So when you’re setting that stop, make sure that from your entry point to that stop is less than 1% of your account based on whatever position size you take.

Trading involves substantial risk of loss. Only trade with capital you can afford to lose. And once again, you’re going to need to really test out this strategy. This one’s going to take a bit more work, because if you want to incorporate it you’re going to have to see which levels and which timeframes work best for each pair. So test it out before you start using it with real capital. Until next time, happy trading.

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