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How To Trade Using the CCI Indicator Like A PRO

How the pro’s trade using the CCI trading system is very easy to understand. In this article, you will also learn about the CCI indicator and why it is useful in your trading. If you want to break from the crowd mentality and join the professional traders then what you’re about to learn next will grab your interest. Long-term profitability demands different types of trading skills. 

One of the fundamental trading principles that our team at Trading Strategy Guides religiously follows is to trade in the direction of the dominant energy of the market. This is really important, so make sure you commit this to memory.
But how we determine the dominant energy of the market?

That’s where the CCI indicator strategy comes in and the price action as well.
Moving forward, we’re going to talk about the CCI indicator also known as the Commodity Channel Index; we’ll explain the theory behind CCI, and then highlight some real trade examples to show you how the CCI works.

What is the Commodity Channel Indicator (CCI) indicator?

As you may guess by now, the only indicator you need to spot new market cycles is the CCI indicator.

The CCI indicator was created by Donald Lambert and was initially used to identify cycles in the commodity market. However, it tends to perform the same in the stock market or the Forex currency market and even the cryptocurrency market for that matter.

CCI trading system

The CCI indicator strategy was really designed to find cyclical trends in the market and to be used as a bearish or bullish filter. The CCI is simply an oscillator indicator that moves the majority of the time between +100 and -100.

Technically, the way to interpret the Commodity Channel indicator is that a positive reading above +100 is a bullish signal and a start of an uptrend, while a negative reading below -100 is a bearish signal.

CCI indicator strategy

You have to keep in mind that technical indicators are just mathematical equations. However, the CCI is a leading indicator which means it doesn’t lag behind the price
A good trading tip on how to use the CCI indicator is in conjunction with chart analysis

How the Professional Traders use the CCI Indicator Strategy

The CCI trading system doesn’t look for overbought and oversold signals. You have to understand that when we’re above +100 CCI reading that is actually showing strength. In other words, the dominant market energy is to the upside.
Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of this entry method. For this article, we’re going to look at the buy side.

Step #1: Wait until the CCI indicator crosses above +100 level

When we get a CCI reading above the +100 level, that shows statistically the EUR/USD gained more strength than average and therefore great for buying opportunities.
As a leading indicator, the Commodity Channel indicator can provide us with excellent great trade signals.
When the CCI crosses for the first time above the +100 level that’s the signal that a new bullish trend is about to start or at least a rally will emerge from where you can extract sound profits.

cci indicator download

We’re still not ready to trade yet.
There is one more trading condition that needs to be satisfied before pulling the trigger.
See below:

Step #2: Wait for a retracement and make sure that during that retracement the CCI indicator holds above the zero line.

Waiting for a pullback in price is a more defensive trading approach. However, you can also buy right away when the CCI crosses above +100. In this case, you need to make sure enough time has elapsed between now and the last time the CCI passed above +100.
We’re going to apply the more conservative approach and wait for a retracement and the CCI indicator to hold above the zero line during this retracement.

cci indicator explained

Here is the key.
We want to see a weak retrace in the CCI indicator that barely goes below the +100 level, but at the same time, we need to look at the price action retracing more than the CCI did.
We want to have strength to the upside if we’re going to buy EUR/USD and we want to see continued strength in the CCI reading when the price is pulling back.

When the retracement happens, it’s important for the CCI indicator to remain above the zero line. If the CCI crosses below the zero line during the retracement, we’re no longer interested in going long EUR/USD.

This is one perfect example of how to filter bad trades from the right trades.
Note* The less the CCI turns down, the more powerful the rally should be.
The next step will highlight the trigger for our entry order.
See below:

Step #3: Buy after 3 or 5 candles “worth” of retracement. Or, sharp Corrections are bought at the closing price.

Now, we’re looking for long trades.
We have two options for our entry strategy.
We either buy after we have seen the market pulling back over the last 3-5 candles or we buy straight away if we have sharp corrections.

CCI indicator strategy

The natural ebb and flow of the market are given by these short-term pullbacks that we’re going to use to trigger our entry.
If the retrace was weak, it means the dominant energy of the market remains up. The CCI indicator strategy reflects quite well what is happening behind the scene where the actual buying and selling pressure takes place.
This brings us to the next important thing that we need to establish for the CCI trading strategy, which is where to place our protective stop loss.
See below

Step #4: Place your protective Stop Loss below the most recent swing low

We’re proposing a very easy strategy to manage your stop loss. Simply place your protective stop loss below the most recent swing low.
However, it’s important to also watch the CCI indicator for further clues of weakness, and if the CCI crosses below the -100 level after you’ve entered the market, you can close the trade at the market price if your stop loss wasn’t triggered in the process.

cci forex trading strategy

Last but not least, we also need to define where we take profits when trading with the Commodity Channel Index indicator.
See below:

Step #5: Take profit if CCI touches 200 or if CCI drops below the zero level. Whichever happens first.

We have two trading tactics to implement when dealing with exits.
The more profitable exit strategy is to take profits when the CCI touches the +200 level. However, since the market will only occasionally give us such big trading opportunities we need to have a backup plan.
As soon as the CCI indicator turns below the zero level, we want to exit our trade. The first sign that the rally is running out of steam is when the CCI indicator crosses below the zero line.

CCI trading strategy PDF

Note** the above was an example of a BUY trade using our CCI trading strategy PDF. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.

CCI trading system


Conclusion – CCI Indicator Strategy

The overarching principles of the CCI strategy can be applied to your own trading strategy as well. All markets move in cycles, so we recommend using the CCI indicator in combination with higher time frames as this will yield better trading performance according to our backtesting results.
If you got value from the CCI trading strategy PDF, please don’t be shy to share it with others. It feels good to do the right thing, so go ahead and do the right thing and you’ll have your heart filled with joy.