my favourite trading strategy - courtney · pdf filemy favourite trading strategy . ......
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My Favourite Trading Strategy
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Commodity Channel Index
• Donald Lambert 1980
• Identify new trends or warns of volatility
• Developed to identify cyclical turns in commodities
• CCI measures a current price level vs. an average level over time
• CCI is high when price is above average
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CCI Calculation
• CCI = (Typical Price - 20-period SMA of TP) Divided by
(.015 x Mean Deviation)
• Typical Price (TP) = (High + Low + Close)/3
• Constant = .015
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Commodity Channel Index
• Lambert set the constant at .015 to ensure that approximately 70 to 80 percent of CCI values would fall between -100 and +100.
• The smaller the CCI period (look back period), the smaller the number of values between -100 and +100.
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Commodity Channel Index 20 period
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Commodity Channel Index 40 period
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CCI Interpretation
• A coincidental indicator – surges above 100 show strong price action and could signal the start of an uptrend.
• A leading indicator – overbought or oversold conditions with bullish and bearish divergence.
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CCI - Coincidental
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CCI - leading
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Stochastic Oscillator
• A momentum indicator developed by George Lane in the 1950’s.
• Does NOT follow price or volume.
• Follows SPEED or MOMENTUM of PRICE.
• As a rule, momentum changes direction before price.
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Fast Stochastic
• %K = (Current Close - Lowest Low)
Divided
(Highest High - Lowest Low) X 100
• %D = 3-day SMA of %K (trigger line)
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Fast Stochastic
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Slow Stochastic
• Slow %K = Fast %K smoothed with 3-period SMA
• Slow %D = 3-period SMA of Slow %K
• I use 8-period SMA and 4-period SMA of Slow %K
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Slow Stochastic
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Slow Stochastic Interpretation
• Overbought – above 80
• Oversold – below 20
• Ignore Overbought/Oversold when trending.
• Divergence
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Slow Stochastic Interpretation
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Slow Stochastic with Trend
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Putting it together
• Slow stochastic - 13, 8, 4
• Commodity Channel Index – 20
• Trigger line
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Putting it together
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Putting it together
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Putting it together
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Putting it together
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Putting it together
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Current Trades
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Current Trades
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Current Trades
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Current Trades
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Current Trades
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Current Trades
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Current Trades
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In closing
Questions and open discussion