Sunday, August 7, 2011

Interesting Trade Setup using Daily CCI Signals

Just running through old ideas I used to trade on and found something interesting. It employs Daily timeframe signals and relatively fixed trade levels (which is quite useful as everyone knows price has a memory which needs to be respected).

The primary signal is when the CCI on the daily puts in a reversal outside the 100+/- level and the price has pierced the keltner bands. Draw a fibonacci based on that days high and low and trade these levels on the CRB chart (I usually use 20crb by default as it gives me a reasonable risk reward without having the babysit my charts). If price breaks the high or low of the day which created the signal we still trade the extensions from those fibonacci's but instead of looking for reversals we will be trading with the trend. This solves one of the worst problems in my Meantrade systems, fighting the trend. Here are two setups from this year.

We can see the CCI dipped below the 100 level creating a sell signal on 4/5. We then take the fibonacci levels created on that day to the next day of trading which is 4/6. We get a nice short for the clean winner. But the days following the market reverses back long and we don't see any short signals on the CRB chart. At this point we trade the extensions looking for longs. Until the next Daily CCI reversal signal at the end of trading on 4/13 where we are looking for shorts again.

Here is the most recent CCI signal on the close of 7/27. CCI has been short all last week.

The results were fairly good, a few homerun trades coupled with the expected volatility in the current market conditions. With tight stops 182. With mean reversion stops a really tasty 307 in 8 days. Definitely going to be following this for the foreseeable future. Very clean rule based trades which can be automated.

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