Trading Woodies CCI On ForexOne of the most commonly traded Woodie CCI patterns is the "zero line reject" - the CCI bouncing from its zero line. Given what we know about what the CCI is telling us, we can see that a zero line reject is actually the price bouncing from its Moving Average. But the CCI can provide additional confirmation for the trade. Here is the same chart as above, which is in fact the GBP/USD pair, with a trend line drawn in. However the trend is not drawn on the price as you might expect, but on the indicator:
The highlighted area shows the CCI bouncing from the zero-line, but there are two other indications given by the CCI that confirm this trade:
1 - The CCI has been above the zero line for more than six consecutive bars. This is a signal that the overall trend is upwards, and hence we are looking for Long trades. If you think back to what the CCI measures, this is common sense because it means the price is staying above its moving average.
2 - The CCI trend line that starts several bars back has been broken to the upside. This break can be used to confirm the zero-bounce. Notice that the break of the CCI trend line actually occurs before the price breaks upwards - hence the CCI often being referred to as a leading indicator. This is where the CCI really helps us by clearly showing what wouldnt be obvious by looking at the price/MA combination alone.
Thus we have three indications in total that the price is potentially going to rise. The trend line break would be the final confirmation for entry, and as we have said, would get us into the Long, before the price explodes upwards.
That takes us in, but what about getting out? Woodies CCI has the answer for that too. There are two possible exits, depending on how cautiously we want to trade.
1 - Hook down from extreme. A reading of greater than +200 or less than -200 on the CCI is considered an extreme reading, and when the indicator turns back from beyond these values, it suggests the price will at least consolidate, and possibly fall back. The first and most conservative exit then, is the first red candle after entry, when the CCI turns back from around +300 - a very extreme reading.
2 - Crossing 100 line. If we wanted to try and run the trade for longer, then waiting until the CCI crosses back below the +100 line is the way to go. This implies momentum has fallen away and the price will follow. Using this second method here would have yielded a few additional pips.
Typically, traders of Woodies system trade very short timescales - 3 or 5 minute charts being common. For forex we recommend a slower chart is used to maximise returns and take advantage of the relatively wider swings that the currency markets provide. The Cable example above is a 30 minute chart, and the trade yielded around 80 pips in no more than a couple of hours. This is trading only one simple with-the-trend setup, and there are further tools in Woodies trading toolkit that add up to even more opportunities each day.
The forex angels say: Woodies CCI system is slated as working on any market, and we believe its certainly well suited to forex - but use the longer timeframes to get the best out of it. As with any system, it takes some learning and a lot of practise, but the relative simplicity and the number of setups available make it attractive to those who like to trade with discretion.
Further Woodies CCI ResourcesWoodies CCI club "meets" in a live chat room every day. Full details can be found on their website, along with a lengthy document which details every aspect of the system. Be sure to read this thoroughly before joining in the chat - it will save a lot of questions! The room is free to join, although there is a small charge for the Hotcomm software that is required to use it.