How-to-use-woodies-cci-indicator

How to Spot Patterns Using Woodies CCI System Indicators

If you are a trader looking for a simple yet effective trading strategy, Woodies CCI might be what you need. Created by Ken Wood, the Woodies CCI is a trading method that involves searching for graphic patterns, drawing trendlines, and watching breakouts of horizontal lines on the indicator chart. This blog post will provide a comprehensive guide to the Woodies CCI strategy, including its description, how to rade it, and exit points.

What is the Woodies CCI System?

The Woodies CCI System is a trading strategy that uses two CCI indicators to identify trends in the market. It was originally designed for trading CFDs but can be used for other markets. The system analyzes the cycles of price movements to define the trend using a histogram. If the bars are above zero and green, it shows an ascending trend. If the bars are below zero and red, it indicates a descending trend.

The Woodies CCI system comprises two charts – CCI and CCI Turbo. The CCI Turbo chart is used for identifying entry and exit signals. The system is suitable for trend markets, and trades are opened in the direction of the prevailing trend.

Woodies CCI Setup

To set up the Woodies CCI system, traders first need to add both CCI indicators to their charting platform. The first CCI chart uses a 14-period setting, while the second chart (CCI Turbo) uses a 6-period setting. The CCI Turbo chart is used to find entry and exit signals for trades.

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Once the indicators are set up, traders can use the histogram on the CCI chart to identify the prevailing trend. If the bars are above zero and green, the trend is ascending. If the bars are below zero and red, the trend is descending. Trades are then opened in the direction of the trend on the CCI Turbo chart.

The Woodies CCI setup is designed to be a simple yet effective system that offers clear entry and exit signals for traders. By following the rules of the system, traders can potentially achieve consistent profits in the market.

Woodies CCI Indicators Explanation

Trend Definition & Signals

When the CCI line is above the ZL, it indicates an uptrend, meaning the asset’s price is likely to go up. Conversely, if the CCI line is below the ZL, it suggests a downtrend, implying that the price is likely to go down.

There are various signals traders can look out for when using the Woodies CCI. Some of the common signals include:

Woodies-indicator-trend-signals


Zero-line reject: This is a situation where the CCI comes close to, but does not cross the Zero-Line, and then heads in the opposite direction. A bullish Zero-Line Reject happens when the CCI is above the Zero-Line, dips towards it, but does not cross below, before heading back up. Conversely, a bearish Zero-Line Reject is when the CCI is below the Zero-Line, rises towards it, but does not cross above, before heading back down.

CCI divergence: This occurs when the price forms a new high (or low) but the CCI fails to form a corresponding new high (or low). This can be a sign that the current trend is about to reverse.

CCI pattern recognition: Traders often look for certain patterns in the CCI line, such as double tops or bottoms, which can signal future price movements.

Chop Definition

The Chop Zone is a feature in the Woodies CCI system that helps traders identify choppy market conditions. It is plotted on the “+100” and “-100” levels and displays the difference between the closing price and its EMA in different colors based on its value.

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1. The color yellow indicates that the difference is less than or equal to the tick size value (TS).
2. Lime shows that the difference is in the (TS; 2TS] range,
3. While light green indicates the difference is in the (2TS; 3TS] range.
4. Dark green indicates the difference is in the (3TS; 4TS] range, and
5. Cyan indicates the difference is greater than 4TS.
6. Light orange shows that the difference is in the (-2TS; -TS] range,
7. Dark orange indicates the difference is in the (-3TS; -2TS] range.
8. Light red indicates the difference is in the (-4TS; -3TS] range, and
9. Dark red indicates the difference is lower than -4TS

By using the chop zone feature, traders can potentially identify choppy market conditions and avoid taking trades during these periods. This can help traders avoid potential losses and improve their overall trading performance.

Counter Trend Signals

Counter-trend signals in the Woodies CCI system are trading signals that go against the prevailing trend in the market. However, trading against the trend can be risky, and traders need to be cautious when using these signals. It is recommended that traders get acquainted with the system by trading patterns that go alongside the trend, as they have a higher probability of execution.

Traders should also be aware that signals to exit a position that was opened along with the trend may be interpreted as signals to open a position counter the trend. One of the counter-trend signals in the Woodies CCI system is the formation of a “V-shaped top.”

This occurs when the values of the indicator leap above 200 and quickly reverse, forming a hook that resembles the pattern of classical technical analysis. This signal indicates a slow-down of the impulse and the beginning of a correction, which may be a good moment to exit the market or enter a trade counter the trend. Traders should always remember to control their risks, perhaps by entering a counter-trend with a much smaller lot than when working along with the trend.

Exit Trade Rules

The exit point rule in the Woodies CCI strategy refers to a set of guidelines that traders can follow to determine the best time to exit a position that was opened using the system. Although the Woodies CCI strategy provides clear entry signals, it does not offer specific levels for taking profits. There are several exit point rules that traders can use.

1. The first is to exit the market when there is a quick return from a level above 200, which is signaled by the formation of a “V-shaped top.”

2. Another exit point rule is to close a position when the quick CCI line breaks the slow one from above in a bullish trend, indicating a slowdown of the trend and a good time to exit the market.

3. Traders may also exit a position when the CCI values return to the zero line after defining the trend, which can indicate a minor test after which the indicator reverses and confirms the trend, providing an opportunity to exit the market.

4. Lastly, traders may exit a position when there is a breakout of the trendline, which is drawn based on the movement of the indicator inside the last impulse. A breakout of such a line will signal the end of the impulse and provide a good opportunity to exit the market at the highest prices. It’s important to note that this signal may also advise entering the market.

How to trade with CCI Trading Strategies & Use Woodies Indicators Effectively

The Woodies CCI strategy is a rule-based system, and the trader only needs to follow the rules suggested by the author to trade it successfully. Here are some of the signals that the Woodies CCI system generates:

1. Determine the trend: Identify the direction of the trend using the CCI Histogram. If the bars are above zero and green, the trend is ascending. If they are below zero and red, the trend is descending.

2. Find entry signals: Next, use the CCI Turbo chart to look for entry signals. For instance, a bullish signal is generated when the green line on the CCI Turbo chart crosses above the 0 line, while a bearish signal is generated when it crosses below the 0 line.

3. A bounce off the zero line: This is considered one of the main signals of the system. It is formed when the indicator defines the trend, and then the CCI values return to the zero line.

4. Look for counter-trend signals: If you are interested in counter-trend trading, look for the formation of a “V-shaped top,” where the values may leap above 200 and quickly reverse, signaling a slow-down of the impulse and the beginning of a correction.

5. Determine exit points: There are various exit points to consider, including a quick return from a level above 200, a crossover of the quick and slow CCIs, a return of CCI values to the zero line after defining the trend, and a breakout of the trendline.

6. Manage risk: As with any trading strategy, managing risk is crucial. Use stop-loss orders to limit potential losses and avoid overleveraging your trades.

By following these steps, you can use Woodies’ CCI indicators to make informed trading decisions in trending markets.

Endnote

The Woodies CCI is a versatile and widely used trading indicator that offers traders many potential entry and exit signals. However, it’s not a magic bullet, and its signals should always be confirmed using other trading techniques and tools. And as always, effective risk management is essential when trading in the forex market.

FAQs

What are Woodies CCI yellow lines?

The color yellow indicates that the difference is less than or equal to the tick size value (TS).

What is Woodies CCI zlr?

Woodies CCI ZLR stands for “Zero-Line Reject,” which is a trading signal that indicates a potential change in trend direction when the CCI crosses above or below the zero line and then quickly reverses.

How to interpret Woodies CCI indicator?

The Woodies CCI indicator is interpreted by identifying trend directions, entry, and exit signals, and the chop zone using the histogram and two charts – CCI and CCI Turbo.

What is the best setting for a CCI indicator?

There is no one “best” setting for a CCI indicator, as it depends on the specific market and trading strategy being used.

Michael Scott
Michael Scott

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