How to see the market context using CCI

Written by Buzz 3 of 5

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Woodie uses the 14 period CCI for every trigger signal. On his charts, he also shows other indicators but these are there mainly to help new traders and provide some common elements between moderators. These indicators are the 25 least squared line and the 34 EMA. Woodie also only enters trades with the trend and does not take counter trend trades at all. Using the 14 and 6 period CCI indicators has been proven to be very effective on any time frame, any futures contract or stock. In Woodies room, people trade using everything from a true 14 tick chart up to a daily chart with the majority using a range between 233 tick and 5 minutes. Some people trade the S&P, others trade the Russell 2000, the Dow, Nasdaq or bonds or whatever else suits them at the time. Again the 14 period CCI is the common thread that allows many of these traders to become very profitable.

In the following screen shot, I have added a very basic 14 period CCI indicator to the bottom of my chart. The top two sections provide the big picture and now we will focus on the triggers. On all of the charts you should also pay attention to the colors I have used in the spread of each CCI pattern. Remember when looking at the 50 CCI, when the spread color is green (above the zero line), it means the trend is up. This has been reversed on the 14 CCI on purpose. The key is to make sure the colors match on the 14 and 50 period CCI when you take a trade.

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

Here is the same chart again. Start by looking at the trend. Is it up or down and why? If you looked at the slope of the 20 and 34 EMA lines and noticed that the blue dots are on top of the red dots and the slope is going up you are partly correct. If you also noticed that the 50 CCI is predominantly green in color indicating an up trend you got the 2nd half correct as well. So if the trend is up, then we should only be looking for long triggers. The CCI method provides some basic patterns that you should look for along with peaks and valleys that you can use to draw in trend lines. By leaving the 6 period CCI turned off, you can see the basic patterns more clearly.

One such pattern is a ZLR or zero line reject. The basic premise behind this pattern is that the 14 CCI line must move from a high peak back towards zero and needs to reverse and head higher. The ideal turn around point for a ZLR long entry is between the +100 line and the -50 line. Of course the opposite is true when you looking for a ZLR to go short. These are basic ranges not absolute ranges. The following chart shows four (4) ZLR’s that occurred during our up trend. Two of them occurred above the zero line and two of them occurred below the zero line and they are all equal by definition.

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

The way I would view this set up is the trend is up. I want to enter it on a pullback since I did not enter earlier. I would like the price to retrace back towards the 34 EMA, but I do not want it to break through the 34 EMA and stay there for too long. I would be looking at the 14 CCI and waiting for it to drift back towards the zero line. I would like it to form a ZLR below the +100 line but above the -50 line. Once the 14 CCI hooks giving me a valid ZLR signal I will enter the market with confidence. The trend is up, my stop is in place and now I just need to sit back and let the market decide. The trade may work out in my favor like it has many times in the past, or it might fail and hit my stop. Regardless, this is just one trade of many I will make, and the outcome of this one trade will not affect my mental well being as a trader. I win either way.

I would view each of the four ZLR’s the same as the above example. They are all they same.

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