How to see the market context using CCI

Written by Buzz 2 of 5

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Trend —what is it and how do we know which way it is going?

Uptrend                                                             Downtrend

Let’s start to look at trend by using just the 20 and 34 EMA lines. I said earlier if the slope of the lines is going upwards with the blue dots on top of the red dots, then the trend is heading upwards. Classic price action will also tell you that you should also see higher highs and higher lows. Notice how the same is true in a downtrend as shown in the screen shot to the right. The same is true. The slope of both EMA lines is going downward with the blue dots falling faster than the red dots and the price action is making lower lows and lower highs. It would be nice if this was all that we needed to stay on the correct side of the trend but another indicator can prove to be useful as well.

IF THE 34 EMA LINE IS FLAT DO NOT TAKE THE SIGNALS. THE MARKET IS IN CHOP.

Now let’s add the 50 CCI to the above to strengthen our understanding of trend. The CCI has a zero line and Woodie has pointed out that this is the mean, or where the support and resistance is for that index fund. When the 50 period CCI is above the zero and it looks like it is flat or rising, I will only look for long triggers. I have color coded the spread on this indicator so that visually you know you are in long mode when the spread color is green. Green means you are in long mode and you should only be looking for long triggers if your goal is to follow the trend. If you compare the point at which the 50 CCI crosses through the zero line to the point on the price chart where the 20 period EMA crosses the 34 period EMA you find them
to be almost the same. The opposite is true when it is below the zero line. There I will only look for short triggers. Again the spread on the 50 CCI has been color coded to show red when you are in short mode. Look at the next few screen shots and just concentrate on the points where the
50 CCI crosses through zero and the points where the 20 EMA crosses the 34 EMA. Next look at what the price action is revealing at the same time. Given the choice, would you rather be in a short position when both EMA lines are falling and the 50 CCI is below zero or a long position?

(50 CCI only for trend)
IF THE 34 EMA LINE IS FLAT DO NOT TAKE THE SIGNALS. THE MARKET IS IN CHOP.

Here is another example of how the 20 and 34 EMA lines work together with the 50 period CCI to show you the market trend. The 20 period blue EMA is leading downward and the 34 is on top. When the spread color is red on the 50 CCI, the market is short mode. See how the two indicators work well together.

This screen shot also shows a very nice pullback as the market reverses and moves higher. This is really the 2nd pullback and it goes through the 34 EMA and also through the 50 CCI, but only for a little bit and then resumes its upward climb. We will talk more about these when we discuss entries later on. For now, just focus on where the trend changes.

IF THE 34 EMA LINE IS FLAT DO NOT TAKE THE SIGNALS. THE MARKET IS IN CHOP.

Here is the last screen shot we will look at to help you see the trend better. Again compare when the spread color of the 50 CCI changes from red to green and when the red and blue EMA dots cross. Also look at the direction of the price movement to confirm to yourself that you would be better off to be long or short in harmony with these indicators/

IF THE 34 EMA LINE IS FLAT DO NOT TAKE THE SIGNALS. THE MARKET IS IN CHOP.

You should have a good understanding of when to be long and when to be short now if you were able to follow the examples above. Now I will add another indicator for you to look at as we continue to build on what we have learned.