Cci divergence forex

The CCI Divergence System You can use many different indicators to trade these divergence patterns, such as RSI and Stochastics, for example, but in this article I want to discuss a CCI divergence trading system that you can use to trade the major forex pairs because the CCI technical indicator is one of the most effective ones that you can use for this purpose. If you want to, you could add a CCI indicator to your price chart and look for divergence to occur using this one indicator, but for stronger signals, it is a better idea to use two CCI indicators with different settings, and wait until divergence occurs on both indicators at the same time.

I have always found that the CCI 10 and CCI 60 tend to give good signals if they both show divergence at the same time because the price will often reverse in the opposing direction when this occurs. However some traders like to use different combinations, such as CCI 13 and CCI 89 , for example, or CCI 34 and CCI , as shown in the trading example below: Your overall success rate will largely depend on which time frame you like to trade, so it is worth experimenting with different settings.

With regards to entry points, many traders like to enter a position at the close of the following bar or candle after the divergence pattern is first seen, like in the example above, and determine their exit point based on 1 or 2 x ATR, a fibonacci retracement level such as Whichever rules are applied, it is always a good idea to use a stop loss when entering any positions, and to look to make more points from your winning trades in order to compensate for any losing trades because there are no guarantees of success even with the strongest divergence signals.

I have already discovered that there is a CCI divergence indicator on ProRealTime that is really easy to use because it shows a green bar when there is positive divergence, a red bar when there is bearish divergence and no bars when there is no divergence at all.

Examples Here is what a long trade would look like. This is a short trade example. Open your favorite backtesting software. I use Forex Tester 2, so I'll use that as the example. If you want to see how to setup your first Forex Tester backtest, read this tutorial. Once you setup your backtest, come back to this post to see how to test this strategy specifically. Next click on the List of indicators icon to add an indicator. Make sure that it is set to 14 periods. When you see a trade setup, first calculate your stop loss.

If it is not, don't take the trade. Follow the rest of the rules outlined above for each trade. Use a risk spreadsheet to calculate the number of lots to trade. You can create one yourself, or you can download one below for free. If you want to create one yourself, here is the calculation. First, figure out your maximum dollar loss, based on a percentage of your account. This is based on a lot size of 1, currency units. If this is confusing, just follow my settings and do a test.

You will start to get a feel for the numbers. Also compare your results in backtesting to the results in your demo account. That will help you adjust your backtesting settings, if necessary. Multiply your cost per pip by the number of pips of risk. So if your stop loss is pips, your total dollar risk by your cost per pip. In this example, that means the following. The calculator spreadsheet in the download section will help you do this easily or you can create one yourself.

Since most people use Metatrader, I'll use that as an example. The CCI is a default indicator in Metatrader. Add it to the Daily chart of the pair you backtested and monitor the signals. Next, setup a free account with MyFxBook. This website will connect to your demo account and collect your trading results.

Follow their documentation to connect your account. It will give you reports that tell you things about your trading results that would otherwise take a long time to do manually. To learn how to use MyFxBook, watch this video. Downloads Click on the button below to download the Risk Calculator Spreadsheet and Strategy Template for backtesting.

It will make it easier for you to do your tests. Risk calculator spreadsheet — Calculate the proper lot size for each trade Backtesting worksheet — Write down your plan so you don't deviate from it. Conclusion Once you have everything setup, you are ready to start testing. Keep in mind that you should test this method on as much data as possible. The more data you have, the more likely the strategy will work in different market conditions.

So if this strategy interests you, get started right now! Don't hesitate. Regardless if you have backtesting software or not, everyone with a computer can start forward testing right now. Everything you need is in this post, you have no excuses.

In the next part of this series, I will show you the results of my testing. Stay tuned to find out what happens. If you want to subscribe to blog posts via email, you can subscribe at the bottom of this page. If you would like to take a publicly available trading strategy from a forum or blog, test it, then write about it, feel free to contact me. I may feature your test here on Trading Heroes.

What were your testing results? Share them in the comments below. Disclosure: I do get a commission if you buy through some of the links on this page. But it does NOT cost you anything extra, it helps pay for my hosting costs and a portion of the proceeds go to my charity partner. Related Articles.

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