You must have used the Commodities Channel Index (CCI) as a trader. CCI is an oscillator that is often used by the traders to measure the strength of the market cycle and to predict when the current market cycle will end. This CCI Oscillator oscillates between two extreme values of +100 and -100. A value above +100 means the market is overbought and a value below -100 means that market is oversold!
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.
This pullback or what you call retracement usually happens on the following day. But sometimes, the market continues in the direction of the breakout for a few days without making a pullback or retracement.
If your entry order doesn’t get filled in the next five trading days or the CCI Indicator again reaches the overbought or the oversold condition cancel the entry order. As you have almost a full day before the entry order will usually get filled by the market, you can plan your trade well using Fibonacci Retracements and Extensions and only place the trade with an entry order if the Risk to Reward Ratio is less than 1:3.
You can use this CCI Breakout to identify trend, counter trend as well as range trades. You will identify the take profit target with Fibonacci Retracement Levels in case of Counter Trend or Range Trades and with Fibonacci Extension Levels in case of Trend Trades. Place the stop below or above the immediate low or high set prior to the CCI Breakout. Only enter the trade if the risk to reward ratio is less than 1:3 otherwise skip.
You can fist practice this CCI Breakout Strategy on your demo account. This strategy is ideal for part time traders who do regular jobs and trade in the evenings or in their spare time. Good Luck!
Mr. Ahmad Hassam has done Masters from Harvard University. Get this highly profitable Magic Breakout Forex Strategy by Tim Trush and Julie Lavrin FREE. Get these Correlation Trading Cheatsheets FREE.
