The Woodies CCI indicator was developed by Ken Wood. What makes this indicator different? Woodies CCI resembles a more comprehensive trading system than just an indicator. In contrast to simpler indicators, which need to be confirmed by other tools of technical analysis, it can be used independently. The entire article will explain how the Woodies CCI is configured and used in trading.
What is the mechanism behind it?
Since Woodies CCI incorporates several different indicators and metrics, we consider it to be its own trading system. In Woodies CCI, we have five basic components: CCI, CCI Turbo, CCI Histogram, baseline, and support and resistance lines.
A red line denotes the CCI, while a green line represents the CCI Turbo. Regular CCIs have a longer period than Turbo CCIs. It is an oscillator-type indicator which measures the difference between the change in a security’s price and its average price. A rising indicator indicates asset prices are well above average, a falling indicator suggests asset prices are well below average. A significant role is played by CCI in this trading setup.
What are its uses in trading?
The exciting part is now here. In what way does this indicator/trading system send signals, and what kind of signals do you seek from it?
Traders usually look for multiple signals when using this indicator.
1) Rejection on the zero-line
Positive and negative trends are distinguished by zero. One of the most popular uses of Woodies CCI is receiving the signals. CCI approaching zero during a strong trend and then bouncing off in the opposite direction confirms the emergence of a new trend. Make your entry decisions based on the direction of the trend.
2) Divergence in reverse
When a straight line connects all the peaks and troughs on the CCI and the straight line points at zero, it can be expected there will be a significant upward movement.
3) Breaking the downward trend line
CCI peaks or troughs are considered new when both of them are at roughly the same level around the +/-100 threshold. Using signals like this one can be tricky since they can both confirm and contradict the prevailing trend. Still, it is worthwhile to keep an eye on it.
Learning how to use a trading system as complex as this one will take some time and practice. Adding new knowledge to your trading knowledge always pays off, so don’t let this discourage you. Understanding Woodies CCI’s basic principles will make trading more logical and efficient.
How do you set up your computer?
An indicator can be easily set up. Then click on the ‘Momentum’ tab at the bottom-left corner of the screen after selecting the ‘Indicators’ button.
In addition to adjusting the source price, Woodies CCI can be adjusted numerically and visually by altering the colors of each element. Most traders set the indicator according to their specific needs, while others use it with standard parameters. It can be adjusted to meet your needs. You can start testing out Woodies CCI as soon as you become familiar with how it works.