Breakout trading systems are traditionally vulnerable to higher risk levels than strategies following a long-term trend. On the other hand, potential profits pay off the risk as if a resistance/support breached, quotes might keep moving in the same direction for quite a while, allowing traders to hold profitable positions longer than usual. Sometimes breakouts happen with an initial false break of the opposite level. For example, bears try to push prices lower, reach oversold levels, but fail to continue. The bulls enter the market in that case, identifying the bearish weakness, and lift rates far above previous levels. Such a trading opportunity is not so often, however it happens from time to time on several volatile assets such as GBP/USD and other Sterling cross-rates. Exotic currency pairs with comparatively low trading volume and small liquidity offer such a trading pattern even more often.
Although this trading system is based on short-term entries, the most suitable timeframes to arrange the analysis are one-hour, four-hours and one-day charts. Shorter timeframes have too often fake signals, while longer timeframes are too lagging for this strategy. Any currency pair might be used for trading with CCI strategy, but the best result comes with higher volatility levels as the pattern described above does not work in sideways ranges.
What is Commodity Channel Index (CCI)?
CCI Forex trading strategy is based on one single indicator - Commodity Channel Index. Although this CCI indicator was designed in early 1980 to trade on commodities, it works well on currency pairs as well. Traders have found this oscillator as useful, fast and reliable. CCI indicator forex shows oversold/overbought levels with comparatively high frequency, but also it can be used to identify trend reversals and breakouts. We use a standard period here with the default setting of 14 bars, but traders could adjust the best cci settings with lower periods like 13 bars, for instance.
What does cci mean?
The primary condition for long entries is to find a moment when CCI reached Oversold Confirmation, touching the level of -150. Once that occurred, we monitor the cci indicator closely, especially when its line appears close to the overbought level. We open long positions when CCI performs the bullish crossover, breaking through the +150 level. The stop-loss has to be set 15-30 pips below the entry bar, while the take-profit approach is aggressive. Some traders might use a preset number of pips for taking profits, but we’d prefer a trailing stop instead, as quotes might keep edging higher after the trading signal occurred.
If you like this strategy, you might also be interested in this Renko Charts
For short entries, the patter in similar but the opposite. We need CCI indicator to test the overbought level of +150, reverse, and decline sharply to the oversold territory. Once the cci stock indicator performed the bearish crossover, coming below the -150 scale, we open short positions. Take-profit and stop-loss orders are the same as per long positions.