CCI Commodities Channel Index Breakout Strategy
Commodities Channel Index (CCI) is an oscillator that is widely used by traders to determine the overbought or oversold condition of the market cycle. It oscillates between the two extreme values of +100 and -100. A value below -100 means that market is oversold and a value above +100 means the market is overbought.
Now, when the CCI value falls below +100, it means the market is breaking out of its overbought condition. Many traders take it as signal to sell. Similarly, when CCI value rises above -100, it means the market is coming out of its oversold condition. Traders take it as a signal to buy. In this CCI Breakout strategy, we will be using CCI breakouts in combination with the usual support and resistance on the daily charts.
Let's discuss the details of the CCI Breakout Strategy! Suppose, CCI oscillator value rises above -100 or falls below the +100 level. When this happens, it means that the market is coming out of its oversold or overbought condition. This breakout is usually followed by a retracement or a pullback before the market again start continuing in the direction of the breakout. Place an entry order at the open price of the daily candle that appeared on the breakout.
Usually this retracement occurs on the following day. So, expect to see your order filled on the following day. However, sometimes, there is enough momentum in the breakout to carry it forward without pulling it back to the opening price of the breakout candle for several days.
If this happens and your entry order doesn't get filled for the next let's say five trading days or the CCI oscillator again falls back to the overbought or the oversold condition, simply remove the entry order and wait for another trade. When using the CCI Breakout Strategy, you will get ample of hours before the entry order is filled by the market. You can utilize this time to think and plan your trade well using Fibonacci Ratios.
In the CCI Breakout Strategy, you will place the stop loss below the immediate low prior to the CCI Breakout or above the immediate high set prior to the breakout. In case of a trend, use Fibonacci Extensions and in case of a range use Fibonacci Retracement. Calculate your risk and reward and only enter into a trade if the Risk to Reward Ratio is less than 1:3 otherwise simply skip and wait for another trade to develop.
As always first master this CCI Breakout Strategy on your demo account. You can also use a trailing stop once the trade turns profitable equal to the amount that you had risked.
Article Source: FxTradingStock.com
About the Author
Mr. Ahmad Hassam has done Masters from Harvard University. Get these 3 Swing Trading Systems FREE. Master these highly profitable Candlestick Patterns with this FREE 82 page PDF Candlestick Guide.
by: Ahmad Hassam
Total views: 31
Word Count: 451
Date: Wed, 17 Nov 2010
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