Trading Strategy For Two Double CCI Oscillators
The commodity channel index (aka CCI) is a popular oscillator used by traders to find the best entry point into the market. This is what differentiates this category of indicators from trend instruments, which are usually used to assess the overall market situation.
In this article, we will look at a trading strategy which has two types of CCI oscillators at its core, and an adaptive type Moving Average will be used as an auxiliary filter.
Overview of the indicators and the strategy
The main system is two modifications of the Commodity Channel Index – a Weighted CCI and a Transformed CCI. The adaptive MA from Perry Kaufman plays the supporting role. Let’s go over each indicator in more detail.
CCI with Volume Weighted EMA – this is a slightly improved classic version of the Commodity Channel Index. The difference lies in the fact that in addition to averaging, this oscillator also “weighs” price bars. If we don’t go into the subtleties of the mathematical formula for calculations, we can note two key advantages of this tool. First, it better reflects the situation on the market under conditions of quick changes in the level of volatility. If there is a sharp price jump, the indicator will quickly react to it. Secondly, the presence of a weighing formula makes it possible to increase the accuracy of signals in conditions of explicit cycles fading and smoothing of the amplitude of price fluctuations.
Inverse Fisher Transform CCI – this is a hypersensitive oscillator that can be roughly compared to the Parabolic SAR indicator. The tools work on completely different principles, but there is a common point that unites them, which is their duality and lack of a neutral phase. IFTCCI doesn’t really show mid-market conditions, instead it immediately enters the oversold or overbought state. This feature enables you to use this tool to determine specific points to enter the market. The indicator works well in combination with other oscillators, but not as a standalone tool.
Kaufman Moving Average Adaptive (KAMA) – this is Kaufman’s Moving Average, created by him in 1995. The idea to develop this tool came to its creator upon repeated observation of the problem of scaling the chart when analyzing trends of different intensity. Perry Kaufman decided to eliminate this problem by creating a Moving Average that would adapt itself to dynamically changing market conditions and save the user from the need to manually adjust the scale. A practical benefit of this indicator is that it is suitable for analyzing the market not only in an active trend phase, but also during a flat.
Setting up the chart and trading platform
This strategy is universal – for analysis, we use the publicly available platform from TradingView (https://www.tradingview.com). We recommend trading on the terminal from the Binomo company. This platform is on top in terms of trading convenience and trustworthiness.
Step-by-step setup instructions:
- Open the live chart from TradingView. And in an adjacent tab, open a web terminal for trading, for example, Binomo (https://binomo.com/). If necessary, we log into our account or sign up, it will take just a minute.
- Select the same asset for both tabs – one which has the highest return being offered. However, CRYPTO IDX is not suitable for this strategy, since it is an integrated asset on Binomo and it isn’t available on the TradingView terminal. Set the candlestick mode with a time frame of 1 minute.
- We add three indicators to the TradingView platform: “CCI with Volume Weighted EMA” (10), “Inverse Fisher Transform CCI” (5, 9) and “Kaufman Moving Average Adaptive” (21). To do this, copy each name from the quotes and paste them one by one into the search bar.
- We adjust the indicators using the values indicated in parentheses in the previous paragraph next to the names of the instruments. Some of them will already have that period by default. You can also increase the thickness of the lines to make them easier to see.
Trading signals on the strategy
The trader will have to closely monitor price movement. As soon as the candles approach the Kaufman Moving Average curve, the oscillator values should be carefully monitored. At the time of the breakdown of the line, subject to confirmation by the CCI, you should enter the market.
- On an increase – a green candle breaks through KAMA, and the CCI oscillators go into the overbought zone (above).
- On a decrease – a red candle breaks through the KAMA curve, and the CCI go into the oversold area (below).
As soon as the signal appears and the candle that breaks through the MA curve closes, go to the Binomo tab and open a trade. The picture below shows the same fragment of the chart as on the TradingView platform above.
The expiration period should be chosen for 5 minutes. Before opening a trade on the Binomo terminal, select the fifth and last option marked in orange in the drop-down list of the “Time” parameter. The actual duration of the transaction will be from 4 to 6 candles, which is quite long enough to make a profit on the signal of these indicators.