The CCI Woodies – A Complete Trading System in a Single Indicator: The CCI Woodies is a technical analysis indicator developed and presented to the trading community by Ken Wood. What is its most distinctive feature? CCI Woodies looks like a complete trading system, rather than a single indicator. Therefore, it can be used by itself (unlike other simpler indicators that require confirmation from other technical analysis tools). Read the full article to learn how to set up and use the CCI Woodies when trading.
How does it work?
When we say that the CCI Woodies is a trading system in itself, we mean that it efficiently incorporates many different indicators and metrics. The CCI Woodies is a combination of 5 basic elements: the CCI Turbo CCI, the CCI Histogram, the baseline and the support/resistance lines.
JRC and JRC Turbo are red and green lines respectively. The Turbo JRC is an ordinary JRC with a shorter period. As you probably already know, The Merchandise Channel Index is an oscillator type indicator that measures the difference between the price change of an asset and the average price. Asset prices are well above the average price when the indicator is high, the asset price is well below the average when the indicator is low. The CCi is the most important part of this trading configuration.
The CCI Histogram is the second part of this trading system. It behaves according to the following rules: сuando the trend is positive, the histogram is above the zero line, when the trend is negative, it is below the zero line. The colour of the bars of the histogram is determined by the previous performance of the CCI. When the indicator remains below the zero line for 6 or more bars, the next bar turns green. When the indicator is below the zero line for 6 or more bars, the next bar turns red.
The overbought and oversold levels, which by default are at ± 100, can be adjusted in the settings menu. The base line is at zero.
The combination of all these factors can be interpreted as an up/down signal.
How to use it to trade?
Now, the most interesting part. What kind of signals is this indicator/trading system capable of providing and, more importantly, what kind of signals are you looking for?
There are several signals that traders normally look for to work with this indicator.
1) Zero line rejection
The zero line is an important boundary separating positive and negative trends. It is used to receive one of the most popular signals from the CCI Woodies. When the CCI approaches the zero line during a strong trend and then rebounds in the opposite direction, a new trend is considered established. Consider making an entry based on the prevailing direction of the trend.
2) Reverse Divergence
When there are peaks and drops in the CCI that can be connected by a straight line, and the straight line points to zero, a strong trend in the direction of the straight line can be expected.
3) Rupture of the Horizontal Trend Line
When two CCI peaks or drops are located at the exact same level around the +/-100 limit, traders usually open a trade. This signal is complicated to use, as it can go in both directions, in favor of the prevailing trend, or against it. However, it is good to have an eye on this pattern.
A break in the horizontal trend line indicates a next trend.
With a complex trading system like this, you will undoubtedly need time and practice to use it correctly. Don’t let that stop you, however, it is always beneficial to learn something new in trading. What may sound intimidating at first becomes clearer and more logical once you get to the basic principles of trading with the CCI Woodies.
Keep in mind that Ken Wood was against the use of take-profit orders, but he had full confidence in stop-loss orders.
How is it configured?
Setting the indicator is easy. To do this, you can click on the ‘Indicators’ button in the lower left corner of the screen and then search for the CCI Woodies in the ‘Moment’ tab.
In the menu that appears you can adjust the numerical and visual settings of the CCI Woodies, the color of each item, the periods of the CCI and the levels of support and resistance as well as the source of the price. Some traders would recommend to use the indicator with the standard parameters, while others advise to adjust them to your personal preferences, it is up to you.
Now that you know how the CCI Woodies is used to trade, you can go to the platform and test this indicator.