How to see the market context using CCI

Written by Buzz 5 of 5

Here is another interesting example to look at. First establish what the trend is and why. Look at the 20 and 34 period EMA lines. They are showing a downward trend. Next look at the 50 CCI. The color is red so the trend is down. Next look for short triggers. The 14 CCI shows two nice ZLR trades which would also be trend line breaks with the trend. In the middle of the screen shot, if you are looking at the price bars, you will see a very nice example of strong resistance and the 50 CCI holding flat at the zero line as well. The best trade on this example is when the 14 CCI finally breaks through the zero line and the 50 CCI forms a small Shamu. A great CCI set up for a short trade.

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

As I mentioned earlier, Woodie and some of the other great traders can trade very effectively without the use of price bars on their screens. They trade naked with just the CCI. They use the 6 and 14 period CCI to provide them with entry and exit signals. After getting you should be able to do this yourself. Based on the indicators provided, you should see the trend, know where the price is relative to the 20 and 34 period EMA dots. You
able to label patterns like ZLR and Ghosts on the 14 CCI and draw in TLBs. You should able to see each pullback in the trend along with the triggers.

Try this simple exercise yourself. I have created a chart below and removed the price a copy of this and try to sketch in where the price should be based on the indicators. When are done, compare your results with the answer on the next page. Don’t cheat. Just trust ability and do it. You will be surprised how simple it is after you do a few of these.

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

Here is the same chart but with the price bars added. How did you do? Probably better than you expected. Did you label the patterns and TLBs correctly? Did you have the trend correct?

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

Here is another exercise for you to try your skills on. Same rules as before. Print a copy, draw in where the price should be, label the patterns on the 14 CCI and where the TLBs should be. Make sure to focus on the trend. When you are done, compare your results with the chart on the next page.

Just for fun, look for the same patterns on the 50 CCI line. How many Shamus, Ghosts and ZLRs do you see? How do they relate to the EMA lines and with the 14 CCI?

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

Here is the same chart with the price bars added back in. I hope that you can see the market context better now that we have done some of these exercises.

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

The rest is up to you. This should give you a good start. Now listen to the real trading masters in Woodies room and learn how improve on this basis approach. When you are able to, help someone else out on their trading journey.
“Buzz”