One of the most remarkable Forex indicators and my personal favorite is the Commodity Channel Index also known as (CCI). This indicators acts as a warning when the market reaches extreme oversold or overbought conditions.
When I use CCI indicator I focus on +200 and -200 levels. So basically when the indicator moves below -200 level this means that the price is oversold and about to reverse and start moving upwards. On the other hand, If the indicator moves above the +200 level this means that the price has been moving strongly upwards and its about to reverse and start falling.
So It’s great at identifying reversals and will help you catch big moves early. But to make it safer you can’t just depend on this indicator alone.
To get the best results out of this, here is a way that have a winning ratio of over 70% and it’s actually very simply and I will share that with you right now.
1) You must first identify the trend to make sure you are trading with the trend and this is usually done using larger time frames like 4hr chart or daily charts. If the price is making higher highs and lower lows then this is a bullish trend. If the price is making lower lows and lower highs then this is bearish trend.
2) So for example let’s say that you are in an up trending market, at this stage you will be only looking to buy. Now here comes the CCI’s role.
In an up trending market, if the price makes a brief retracement to the downside and CCI goes below -200 that’s a strong sign that the retracement is over and the price will continue moving up again.
With a little confirmation like a candlestick inside bar or an outside bar you got your self a very low risk trade and a very good chance of winning this trade.
3) To make things clearer let’s take an example in a bearish trend. So if the price in a down trending market makes a brief retracement to the upside and the CCI becomes above +200 this is a very good sign that the retracement is over and the price will continue it’s down trend very soon.
Now wait to see an inside bar or an outside bar before you execute your trade to make sure that the price action is also confirming that the retracement is over and that the price will most probably go downwards from here.
This is a very good tactic that I use my self along with some support and resistance lines you are in for a very profitable yet very simple Forex trading strategy.