Commodities Channel Index (CCI) is an oscillator that measures the strength of the current market cycle and attempts to predict when it will end. CCI indicator default measurements are +100 to -100. When the indicator is above +100, the market is considered to be overbought and when it is below -100, the market is considered to be oversold.
Commodities Channel Index breakouts occur when it falls below +100 or rises above -100. Most traders are taught to buy when the breakout from the oversold market takes place and sell when the breakout from the overbought market condition takes place. In this CCI Breakout Trading Strategy, we will be using a variation of this by combining the Commodities Channel Index Breakouts with our usual support and resistance on the Daily Charts.
Suppose the CCI Breakout takes place on the Daily Chart meaning the indicator falls below +100 or rises above -100. Place an Entry Order at the open price of the daily candle that caused the breakout. When a CCI Breakout takes place, the market often retraces to find enough interest amongst the buyers and sellers in the market to continue the breakout.
This pullback or what you call retracement usually happens on the following day. But sometimes, the market continues in the direction of the breakout for a few days without making a pullback or retracement.
If this happens and your entry order doesn’t get filled for the next let’s say five trading days or the CCI oscillator again falls back to the overbought or the oversold condition, simply remove the entry order and wait for another trade. When using the CCI Breakout Strategy, you will get ample of hours before the entry order is filled by the market. You can utilize this time to think and plan your trade well using Fibonacci Ratios.
In the Commodites Channel Index Breakout Strategy, you will place the stop loss below the immediate low prior to the CCI Breakout or above the immediate high set prior to the breakout. In case of a trend, use Fibonacci Extensions and in case of a range use Fibonacci Retracement. Calculate your risk and reward and only enter into a trade if the Risk to Reward Ratio is less than 1:3 otherwise simply skip and wait for another trade to develop.
First practice this strategy on your demo account. Commodities Channel Index Breakout Strategy requires patience as your trade can run for several weeks to reach the profit target. You need discipline to set the trade in motion and let it run. Occasionally these trades can run from positive to negative floating profits as they work their way to the intended profit target. Once the trade is set in motion, you don’t need to do much. You can cut the trade short with a trailing stop if you want to! CCI Breakout Strategy is ideal for those people who trade part time! Get this highly profitable Magic Breakout Forex Strategy by Tim Trush and Julie Lavrin FREE. Get these Correlation Trading Cheatsheets FREE.