Woodies CCI is a comprehensive indicator of technical analysis. It was created and established as a valid trading instrument by Ken Wood. What distinguishes Woodies CCI against the other tools is a comprehensive essence due to which it resembles an entire trading system, not just a mere indicator. As a result, while the rest of the indicators need to be confirmed by other tools of technical analysis, Woodies CCI can be applied on its own. This article will tell you how to set this instrument up and use it in trading.
How does it function?
The ability of Woodies CCI to work as a separate trading system is ensured by the combination of different metrics and indicators lying in its essence. It includes five fundamental elements: the CCI, the CCI Histogram, the CCI Turbo, support/resistance lines, and the baseline.
The CCI (an abbreviation for “Commodity Channel Index” is an indicator measuring the difference between the deviations in security’s average price under the impact of change-making factors. When this indicator is up, the value of the assets significantly exceeds the average numbers. CCI is the fundamental element of Woodies CCI, which can be seen from the very name of this model. The CCI Turbo is, essentially, the same thing as CCI, with one difference: it is applicable to a shorter time period. In the Woodies CCI model, CCI and CCI Turbo are represented by a red and a green line, respectively.
Meanwhile, CCI Histogram is a more distinctive element of the model under discussion. By its position regarding the zero line, CCI Histogram indicates whether the trend is positive or negative, with it being placed above or below the line, respectively. The color of its bars depends on the CCI’s previous performance. Hence, if it keeps over the zero line for six or more bars, the indicator turns green; consequently, it becomes red in case if six and more bars have been set below zero.
As for the other CCI Woodies elements, support and resistance lines are set at ±100 by default. The baseline is set at zero. In their combination, all these factors can be used within the model under discussion to indicate bullish and bearish signals of the market.
The use of CCI Woodies in trading
Now that you understand the basic premises of this indicator’s functioning, you may ask how it works in the trading sphere. What kind of signals can it send, and how should a trader interpret them to make the most appropriate decisions? There are a few things one should consider when working with CCI Woodies.
1) Zero-line Reject. A zero line is a threshold distinguishing a positive trend from a negative one. When the CCI approaches the zero line within a strong trend, after which it rushes in the opposite direction, a trend is perceived as established. When making a new entry, a trader needs to take into account the prevailing direction of a trend.
2) Reverse divergence. In the availability of troughs and peaks on the CCI, all of which can be connected by a line which, in turn, is pointing at zero, there are reasons to expect the emergence of a strong trend in the straight line’s direction.
3) Line break of horizontal trend. When two troughs or peaks of CCI are situated on an identical level, approximately around +/-100 threshold, a trader might consider initiating a new deal. It is a tricky signal since it can be directed both at and against the prevailing trend. Nevertheless, one should not lose this pattern from sight.
Considering the complexity of this trading system, an investor will need comprehensive practice and considerable time to learn how to apply it correctly. This challenging perspective should not stop you since, in trading, you will only be the best if you are ready to learn new things continuously. The aspects that intimidate you at first become apparent and logical as soon as you grasp their basic principles. This statement is especially applicable to Woodies CCI.
Setting it all up
While reading and interpreting the signals translated by Woodies CCI may be difficult, one thing that is easy about it is setting this indicator up. In the bottom-left corner of the screen, click the button stating ‘Indicators,’ open the ‘Momentum’ tab and find Woodies CCI there. A menu will appear in which you should select the proper visual and numerical settings, including the colors of the attachments, resistance and support levels, CCI periods, the source price, and other essential aspects. You may use the standard parameters of the indicator or adjust them to your preferences – it is all totally up to you.
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Now that you know what Woodies CCI is and how it functions, you can give it a try. Proceed to the system, set up the parameters, and start your interaction with this essential trading indicator.
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