The CCI Woodies Indicator, sometimes referred to as “Woodies CCI” is an indicator which is based on momentum. This indicator was developed by Ken Wood (obviously, the indicator was named after him). The CCI Woodies indicator is based on a 14-period CCI (Commodity Channel Index) and is a fully unbounded oscillator, having a base value of 0 and without any upper or lower limit. The CCI Woodies Indicator is used by some traders to spot certain potentially profitable patterns both with and against the trend.
What is the CCI Woodies Indicator?
The CCI Woodies Indicator is one of the many indicators that belong to the class of indicators called “Oscillators”. The indicator was believed to help determine accurately the turning points in the financial markets, and many traders believe that this indicator has long been working in the financial markets among other indicators for technical analysis.
CCI Woodies Indicator was modified from CCI (Commodity Channel Index). Woodies CCI consists of two CCIs with periods 6 and 14 respectively. The movement of the slow CCI is predicted by a fast curve. The key levels of the CCI Woodies Indicator are +100, +200, -100, -200, and 0 levels.
CCI Woodies Strategy
The CCI Woodies Strategy is quite easy to understand and the rules, when followed, can cause the trader to catch some good moves. In this strategy, two indicators with periods 14 and 6 respectively are placed on the same chart window. One of the indicators is called CCI while the other one is called CCI Turbo. The CCI Turbo is used for finding entry and exit signals. This strategy is designed for trending markets, therefore trades are meant to be opened only in the direction of the prevailing trend. The indicator also employs a histogram to define the trend.
The trend is bullish when the bars are above the zero line and are green in colour. If the bars are below the zero line and are red in colour, then it is a bearish trend.
Buy Signal
The following should be your checklist for a buy trade:
- When the indicator gives a green arrow.
- When the histogram bars are above the zero line and are green in colour.
Once these two events occur, you could do the following:
- Open a buy position just immediately after the green arrow.
- Set your stop loss just below the nearest support level.
- Set your take profit at the nearest resistance zone.
- For good risk management and long-term profitability, only pick the trade if your risk to reward ratio is 1:2 or more.
Sell Signal
The following should be your checklist for a sell trade:
- When the indicator gives a red arrow.
- When the histogram bars are below the zero line and are red in colour.
Once these two events occur, you could do the following:
- Open a sell position just immediately after the red arrow.
- Set your stop loss just above the nearest resistance level.
- Set your take profit at the nearest support zone.
- For good risk management and long-term profitability, only pick the trade if your risk to reward ratio is 1:2 or more.
CCI Woodies Pros & Cons
Pros
- The histogram and arrows are very easy to read, and they provide entry and exit signals.
- This indicator can be used to identify trending markets, giving the trader the opportunity to ride long trends.
Cons
- The indicator do not offer specific take profit and stop loss levels, one would need extra knowledge of technical analysis to determine TP and SL levels.
- This strategy may not be easy to use during a ranging market.
Conclusion
The CCI Woodies Indicator, which is a composite indicator, is a significant improvement over the simple CCI. This indicator offers an interesting trading strategy which is easy to understand by even a novice trader. The trader who uses this strategy just needs to wait for the patterns to form before proceeding to enter the markets strictly based on the signals received. As always, make sure you have good forex money management and always practice on a demo account before taking any risks.
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