Although the indicator was designed for trading on commodities, its reliability and fast execution allowed traders to use it for trading on binary options with any underlying asset. CCI is an oscillator, showing oversold and overbought levels, but it also can point to reversals and breakthroughs, which is extremely important for active trading periods to identify the trend’s direction. In this case, we use CCI’s ability to show false breakouts when the market is trying to test technical support level before reversing and breaking through the resistance.
The most effective timeframes are one-hour, four-hours and one-day charts. Default settings have to be changed as we require the indicator to show only sustainable trading signals and avoid false situations. Therefore, the period has to be modified to 14 bars from the default period of 20 bars. The threshold level has to be widened to -150 and +150 instead of -100 and +100 as it was initially designed for. That gives us a more comprehensive picture with more frequent signals, as well as higher efficiency of the trading system.
The necessary condition to start the trading cycle with call options is that CCI has to test the oversold level, reverse and go back up to the overbought territory. Before we start buying call options, CCI oscillator has to cross the +150 level, signalling a bullish breakthrough after the failed test of the support level. If the price declines to 15-30 pips below the entry candlestick, we stop the trading cycle. If the quote edges up in the right direction, we keep buying call options until a reversal signal happened.
For put options cycle, we need to find an opposite pattern. When the bulls try to lift the rate above the resistance level, and CCI entered into the overbought territory, we start monitoring the price action. A quick reversal and the bearish confirmation crossover points to the start of the trading cycle for put options. The rest of the conditions are the same as per call options. An example of the trading system in action is shown on the chart below.