CCI and MACD Strategy

Trading forex with the CCI can be good for spotting overbought and oversold market conditions. However, it is not the first indicator you think of when it comes to spotting market trends. The MACD on the other hand might not be perfect for spotting extreme market conditions but is very good for determining the trend direction and momentum. Therefore, it is logical that if we combine them both together to create a CCI and MACD strategy, we can use the strong points of each indicator to give our forex trading that extra edge.

What is the CCI?

The commodity channel index (CCI) is a well-known technical indicator that many traders use to determine when there are overbought or oversold conditions on the market. If the CCI is above 100, the market is said to be overbought, whereas a CCI below -100 suggests the market may be oversold. We can use these signals to trade the CCI crossover strategy.

The problem is that whilst CCI divergence can help to show the trend, there can still be a lot of false signals when using the CCI on its own. Hence, it can be improved by combining it with other technical indicators such as the MACD. This way we can find extreme market conditions in line with the overall trend and trade pullback.

What is the MACD?

The moving average convergence divergence (MACD) oscillator is one of the most popular and widely used technical analysis indicators that can do a great job of spotting currency pair trends and momentum. The MACD crossover of the zero line or signal line can be a signal of the trend changing direction whereas MACD divergence can help to gauge the momentum of a trend.

MACD indicator signals traders whether a bullish or bearish movement is strengthening or weakening. 12, 26 and 9 are default MACD settings. However, it doesn’t mean it’ll work well in any chart timeframe or within any trading strategy. It’s always better to try different options to find the best one that will suit your trading style.

I prefer trading forex on the 1-hour charts and above as I find that it helps to remove some of the noise from the shorter-term chart timeframes such as the 1-minute and 5-minute charts. It also means that I need to spend less time watching charts which is a bonus.

How to trade the CCI and MACD strategy?

We will be combining the main benefits of both the CCI and MACD indicators so that we can confirm buy and sell signals that will enable us to catch some good market moves. I also like to keep an eye on price action analysis including support and resistance levels along with candlestick patterns. This helps to time entry and adds that extra confirmation which can further help avoid some false signals.

If the CCI is in the oversold zone below -100, then we will be looking to trade long (buy). The MACD histogram should also be crossing the signal line upwards whilst any divergence to the upside would be good. For a short trade (sell), we want the CCI to be in the overbought zone above 100 and the MACD histogram to be crossing below the signal line. Any divergence to the downside would also be beneficial.

Buy signal

  • CCI (14) is around the oversold zone (-100)
  • CCI (14) is showing upwards divergence
  • MACD (12, 26, 9) main line is above signal line
  • MACD (12, 26, 9) is showing upwards divergence
  • Price is moving away from support or breaching resistance
  • Bullish price action

In the EUR/USD 1-hour chart below, you can see that the price has formed a support level which is holding up well. The CCI is around the oversold area and showing divergence to the upside. The MACD is also heading upwards and has had the main line cross the signal line. These are all bullish signals and the trade is confirmed with a green engulfing bar that shows the buyers are winning this particular battle. The stop loss could have been placed just below the support level which would have been around 20 pips. Considering this uptrend went on for over 720 pips, this would have been a great trade. I would have used a break even to lock in the trade and trailing stop to make the most out of the move. See if you can spot the other extreme CCI and MACD crossover entries on the chart.

CCI MACD Strategy Buy Signal
CCI MACD Strategy Buy Signal

Sell signal

  • CCI (14) is around the overbought zone (100)
  • CCI (14) is showing downwards divergence
  • MACD (12, 26, 9) main line is below signal line
  • MACD (12, 26, 9) is showing downwards divergence
  • Price is moving away from resistance or breaching support
  • Bearish price action

You can see from the EUR/USD 1-hour chart below that we have all the conditions for a CCI and MACD strategy sell trade. The CCI is around the overbought zone and is showing downwards divergence. The MACD histogram is below the signal line and also showing divergence to the downside. Price has also formed and tested a resistance level that is holding up well and price is moving away. These are all strong indicators for a sell trade which is confirmed with a bearish three black crows candlestick formation. We could have placed a stop loss just above the resistance level which would have been around 20 pips. That’s not bad when you consider this downtrend continued for around 450 pips. There was plenty of opportunities to take profits on the way down and multiple CCI re-entries. See if you can spot them on the chart.

CCI MACD Strategy Sell Signal
CCI MACD Strategy Sell Signal

CCI and MACD strategy Pros & Cons

Pros

  • Get into big market trends early
  • Combine with other indicators
  • Filter out some false signals
  • CCI and MACD are free to use
  • Any currency pair and chart timeframe

Cons

  • Need to time the entry and exit
  • Requires further confirmation
  • Takes lots of practice to master
  • Will still be false trading signals

CCI vs MACD

These are both solid indicators in their own right, but they serve different purposes. The CCI is mainly for spotting extreme overbought or oversold market conditions, although CCI divergence can help to spot emerging trends. The MACD on the other hand can spot trend direction and momentum. Both the MACD and CCI provide optional entry and exit points, although they are not the best signals when used on their own. IN saying that, they can complement each other very well as the MACD can clarify a trend direction and the CCI an entry into the trend when there is a pullback.

Conclusion: is trading forex with the CCI and MACD strategy worthwhile?

In my opinion, yes! These are 2 of the top forex indicators that can work well when combined together or with other technical indicators. As mentioned, I would always keep an eye on price action for further confirmation of any buy or sell trade. You should also have excellent forex money management as this can be the difference between good and bad results when using any manual or automated forex system.

If you like the look of the MACD and CCI strategy, then you could always give it a try on a free forex demo account which you can get from most forex brokers. This will allow you to practice your trading skills without taking any unnecessary risks. Once you start to see some consistent results, you could always consider the seamless switch over to a live trading account. I would always test any forex strategy on a demo account to begin with just to make sure that it is suitable for my needs.

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