Commodity Channel Index Application
The commodity channel index (CCI) indicator is an oscillator and a momentum indicator used in identifying price trends.
It is made of an oversold line and overbought line as well as a moving average with a default period setting of 14.
The Commodity Channel Index, like most indicators becomes more effective and reliable with increasing timeframe of the currency chart.
Buy and Sell Entry
The +100 level of the indicator is used to represent an overbought level, thereby providing a sell signal, however from years of practice with the indicator on the 15min Timeframe I would recommend a buy entry at the +100 level and a sell entry at the -100 level.
The reason for this is because the commodity channel index is also considered as a momentum indicator used to identify the strength of a trend of forex pairs.
With that being said, the +100 level indicates an uptrend formation or an upward momentum buildup while the -100 is an indication of a downtrend formation or a downward momentum of the price trend.
Buy and Sell Exit
While a movement of the moving average above 100 and below -100 regions provides buy and signals respectively, a movement into the regions between 100 and -100 after a buy or sell entry indicates an exist point.
The above image illustrates the buy exit point of a buy entry.
The buy exist point is the point at which a trader exits a buy position while a sell exit point is the point at which a trader exits or closes a sell position.
The sell exit occurs at any point above the -100 line, which means the points range between -99 and +100.
COMBINATION OF THE CCI WITH BOLLINGER BANDS
This section is written with the assumption that you are familiar with the forex indicators and their utilization, the idea of technical analysis and scalping.
Well, if you have no idea of the meaning of scalping in forex, I will try my best to explain the term in this article.
Scalping involves opening a trading position for a relatively short time period ranging from one minute to about 15 minutes aimed at trapping a small amount of profit of about 5-10 pips.
This strategy is a continuous process and involves repetition of the entire process. The scalping strategy often involves the use of indicators.
The strategy in this article applies to the XAU/USD pair due to its higher volatility and involves the use of three Bollinger bands with distinct settings and a commodity channel index.
Note: The required amount of profits you are advised to take is 5 pips.
This strategy on the 18th of April, 2019, made 7 successful entries and no unsuccessful entry. Multiplying 5 pips by 7 gives 35pips, which means even more can be made with the use of this strategy.
Follow the set up indicated below;
1) Use the candle stick chart type on the XAU/USD Chart
If you are using a different chart type, go to your chart settings and switch from either bar or the line chart type to the candle stick chart type.
2) Set the chart on the 5 minutes time frame.
3) Apply three Bollinger Bands indicators and a Commodity Channel Index indicator.
4) Change the colors of the three central lines in all of the Bollinger Bands to green, blue and red respectively as indicated in the image below and change the price type of the three indicators to high, close and low respectively.
Price Type and Color Settings
On the MTA4 trading software, you are definitely going to see nine lines but we are only interested in the three central lines
Buy and Sell Entry/Exit Points.
Now you have to pay attention to the entry and exitsignals provided by the indicators.
To enable you remember the general idea of this strategy and how it works, I have decided to call this strategy “The two witnesses”.
You should pay attention to the point where the Bollinger Bands and the Commodity Channel Index buy and sell signals coincide.
General Criteria and Instructions
The trend must be cyclical, which means after the buy signal, go for the sell signal. Take 5 pips profit for every buy or sell entry.
Buy Entry Criteria
- The candle stick must die above the blue central line of the Bollinger Bands.
- The commodity channel index must end the 5 minutes timeframe above +100.
Buy Exit and Lost Pips Recovery Strategy
Exit the buy entry when the candle stick dies below the red line or after taking 5 pips profit.
The emergence of the candle stick below the red line after a failed buy entry (a buy entry that did not provide the expected amount of profit of at least 5pips), indicates a loss recovery. This means that you have to recover the lost profits incurred as a result of a failed buy entry by opening a new position with the new sell signal (the end of the five minute candle stick below the red line).
This circumstance is rare for a 5 pip profit trapping strategy
Sell Entry Criteria
- The red candle stick must die below the blue central line of the Bollinger bands
- The Commodity Channel Index Indicator must end the 5 minute timeframe below the -100 region. That is, it must make an intercept with the -100 line.
Sell Exit and Lost Pips Recovery strategy
Close or exit the sell entry when the candle stick of the 5 minutes chart dies above the green line or after taking the specified amount of profit (5pips).
The emergence of the candle stick above the green line after a failed sell entry (a sell entry that does not provide the expected about of profit of at least (5pips)indicates a loss recovery.
This means that you have to recover the lost profitsincurred as a result of a failed sell entry by opening a new position with the new buy signal (the end of the five minute candle stick above the green line).
The combination of these three exact indicators with dissimilar settings provides an excellent stop-out level and profit trapping strategy.
The indicators work together to measure the momentum of trends on a technical bases by providing an early entry of buy and sell positions and predicting short term price deviations.
If properly followed, the strategy would provide an equity not less than 30 pips daily.
OVER 200 PERCENT PROFIT WEEKLY AND CONSISTENTLY
In order to maintain 200% profit weekly, you are recommended to use either 1:1000 leverage or 1:500 leverage.
On accounts with the 1:1000 leverage, to determine the volume you must trade to make the said percentage of profits, you are required to use 10% of your capital multiplied by 1000 (leverage) for each of the five trade days in a week.
10% of capital * leverage = volume
Mathematically, we have;
10/100 * 10000(capital) * 1000 (leverage) = 1,000,000 (10lots)
This means 10 lots must be traded on day one.
On the second day, the profit made summed up with the capital (10,000USD or whatever your capital is) should be used to substitute the capital in the equation.
For instance, if you have 10,000 USD as your initial capital on day one and you made 3000 USD profit, you should add 3000 USD to 10,000 USD to get your new capital (13,000 USD). As your capital grows your profit grows too.
For a 1:500 leverage account, use 20% multiplied by the said leverage (500) to get the volume required.
The same strategy may apply to the 1:400 leverage
OPEN AN ECN ACCOUNT
The strategy in this article is most effective on ECN accounts due to the low spreads.
ECN stands for the Electronic Communication Network which connects traders directly to the liquidity providers, such as brokerages, banks and other traders around the world.
Fortunately for you, there is a Broker with one of the best trading conditions.