Many traders will agree that the entry and exit signals your system utilizes are far less important than most people believe. At the same time, using an entry strategy that has a significant edge can greatly reduce the stress of trading that strategy. If your positions are generally profitable from the start, you won’t have to spend as much time worrying about the losers.
An interesting entry strategy that appears to have a big edge is the CCI 50 System. This strategy was published by user Billbss on the Forex Factory forum in April of 2008. Billbss explains that he borrowed the idea for the strategy from Dr. Bob, who he knew from another site. Dr. Bob had been using the strategy for futures, but Billbss believes he was the first to apply it to Forex.
The CCI 50 Strategy
The strategy is based on the Commodity Channel Indicator (CCI), which is generally used to identify cyclical trends in the futures markets. There are three different entry signals that are possible. They are determined using the 50 unit CCI, the 14 unit CCI, and the 34 unit EMA.
The first possible entry occurs when the 50 unit CCI crosses above its zero line. In this case, the 14 unit CCI and 34 unit EMA act as trend filters. The 14 unit CCI must also be above its zero line, and the current price must be above its 34 unit EMA.
The second possible entry is called the “First Zero Line Reject.” This occurs when the 50 unit CCI has already crossed above the zero line and then either the 50 Unit CCI or the 14 unit CCI cross below +100, but bounces back up before breaking the zero line.
The third possible entry is what Billbss calls “The Slingshot.” This happens when the 50 unit CCI is above the zero line and the 14 unit CCI crossed below -75 and then bounces back above its zero line.
The reverse of any of these three entries would signal a short entry.
Billbss doesn’t specify an exit strategy, but suggests that there are plenty that would work because the entries are so well timed. He did his backtesting on GBP/USD 15 minute bars, but suggested that the entries worked well across multiple currencies and time frames.
Later in that thread, Creztor suggests that using price-based stop-losses would be a good way to exit trades. He comments that exits could be based on the entry price, and also on the 50 unit CCI crossing back below +100.
User MasterOfDomain expands on this idea:
One of the exits most often used with this system is waiting for the CCI 14 to cross back over the +100 line (for longs) -100 (for shorts).
Kenayi adds a similar exit strategy:
I exit my Long position when 14cci breaks -100, returns above (without taking the zero) and breaks -100 again.
my 2nd exit option is when 50cci breaks below 100 level
The Negative Side
As we are moving into 2014, does the CCI 50 strategy still work? Will it continue to work in the future?
More recent commentors on the thread have expressed mixed results. Some have found great success with the strategy, while others produced nothing but losers. It appears that the CCI 50 is just like every other Forex strategy in that its success or failure is determined by the trader who implements it.
One of the key negatives about the strategy is that there will be a large number of false zero line signals, especially when trading it from an automated approach. Structuring an expert advisor to handle these false signals could prove difficult.