Time Scalping Entries With CCI
- CCI is a momentum oscillator used for Overbought / Oversold values
- CCI can be used in conjunction with a MVA to determine trading signals
- Scalpers can time entries when momentum returns with the trend
Timing entries is one of the most difficult parts of trading
retracements in the trend. This is especially true for scalpers looking
to take advantage of quick changes in price and momentum in the market.
Normally an oscillator can be used to simplify this process and give
traders a clear execution signal. Today we will review using the CCI
(Commodity Channel Index) oscillator for scalping trends. Let’s get
started!
CCI and Overbought / Oversold Levels
If you are already familiar with RSI, Rate of Change, or other
oscillators you are one step closer to trading with CCI. Like many
oscillators, CCI uses a mathematical equation to depict overbought and
oversold levels for traders. Pictured below is CCI, which uses a +100
reading to indicator overbought conditions, while a reading below -100
represents an oversold level.
Normally 70-80% of the values tend to fall between these points, which can be interpreted as buy or sell signals. As with other overbought/oversold indicators, this means that there is a large probability that the price will correct to more representative levels. Knowing this, trend traders will wait for the indicator to move outside of one of these points before reverting back in the direction of the primary trend. Let’s look at an example using the strong trend on the GBPCAD.
Timing a CCI Entry
Below we can see an example using a 5minute GBPCAD chart. The currency pair is in an established uptrend with price remaining above a 200 period moving average. Knowing this, trend traders should look to initiate new buy positions. The primary way of timing entries with CCI in an uptrend is to wait for the indicator to move below -100 (oversold), and enter into the trade when CCI moves back above -100. This creates an opportunity to buy the currency as momentum is returning back in the direction of the trend. In the event you are trading a downtrend, the process can be reversed. Trades to sell can be timed as momentum pulls the indicator back beneath an overbought value.
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CCICustomCandles:
The indicator draws candlesticks when finding the CCI indicator in the overbought and oversold levels
Fig.1 The CCICustomCandles indicator
Author: Nikolay Kositsin