Steps for overbought CCI period 14
1/ CCI is overbought
2/ Price is at a resistance level on the
stock charts number one
3/ Trend line is broken
4/ Use your tool
As you can see on the chart, these
conditions have been made but the most
important thing to remember is we are
trading the price, not the indicator.
Double top is a validation of a resistance
level. The price was rejected twice at the
same level. A strong bearish signal after
the validation is a gift. Use your tool to
enter the trade like a pro. If you are
selling, pay attention to the nearest
support level. As the price is falling, it is
seeking a better support level. Manage
the trade carefully and do not allow and a
winning trade, to turn into a losing one.
Notice the first support level (yellow
horizontal line) on the second stock chart
Notice on the stock chart number three, the CCI period 14 is overbought,
but the price is rising. Overbought does not mean sell. The market can remain overbought for a long period.
Learn to trade the CCI flawlessly.
CCI is often overbought during the first and the third Elliott wave. Many traders do miss the trend because they are trading indicators instead of trading the individual financial instrument. To achieve consistent winning trade, one must first recognize his or her common trading mistakes and seek to avoid them. This is the first step to avoid losing consistently.
Notice the ABCD chart pattern on the stock chart number four. CCI 14 was oversold the first time at B. Price starts
going up. Watch out for resistance levels whenever you are buying.
Cautious traders always take profit at resistance levels if they BUY or they will move their stop loss to secure their profit. Do the same. At C, a strong signal was activated. Price starts going down for the second time and reaches D. In theory, AB = CD.
Note that the theory is not always the reality of the messy market.
Price went down first, with a strong bearish momentum. Notice that it stopped at a support level. The BC is a rally in a downtrend. The downtrend was not finished and this was confirmed when the price broke below B.
First white line highlights AB.
Second white indicates CD.
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Notice the surge in the bullish momentum as the CCI 14 reaches the overbought zone on the stock chart number five. Did you recognize that sharp peak? It is bullish. Now price displayed a higher low and turned around.
This is an invitation to BUY. Smart traders responded even though the CCI indicator is already in the overbought zone. Notice they all respected the nearest resistance level and took profit. In an uptrend the price will exhibit higher lows and higher highs, until it fails to display a new higher high and the trend line is broken. The music has changed. Do check the higher time frame to confirm the validity of the resistance level. It is the same story over and over. Keep your eyes wide open and be patient.
No rush, stay calm.
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This is stock chart 6. Notice how the price was consolidating but was displaying higher lows at the same time. When the price is consolidating, it is called a balanced market or low volatility period.
A consolidation that leads to a break out to the up side or to an uptrend is an accumulation zone. Smart money was busy buying during the accumulation period. On the other hand a distribution takes place during a consolidation period that leads to a break down or to a downtrend. Institution were quietly selling when the price was oscillating between two levels. One defined resistance level and one defined support level. Do not try to predict the direction of the trend.
Be patient. The price will first break above the range but will drop to retest it. Remember this:
1/ Break....Retest....Turn around
Markets move in five waves plus abc
corrective waves. Understanding and mastering the Elliott wave theory is essential. One can not avoid the subject of wave principle. This is the heart beat of the market. Whether, one is using MACD, stochastic, RSI, CCI or any other indicator, it is crucial to grasp the Elliott wave theory.
For more about Elliott wave, please visit www.24elliottwaves.com.
Notice on stock chart 7, the CCI 14 was overbought at the end of the fifth wave. Notice the bearish divergence. In theory, the market is considered overbought at the end of the fifth wave in an uptrend and oversold at the end of the fifth wave in a downtrend. One will always wait for a strong confirmation before selling or buying. Trading is not gambling and gambling is not trading.
Wait for a clear cut valid signal without cutting corners.
The price does not always trend. Traders can easily swing trade during consolidation times. Understanding the market patterns (not price patterns) will assist traders in adopting the most suitable trading strategies.
Oscillators such as RSI, CCI, stochastic give excellent signals in consolidation periods. Be aware that the price does not consolidate forever. It is important to manage the trade carefully. Always use stop loss and apply the five per cent money management rules.
Though, this is a low volatility period, it is possible to see few volatile days as the price quickly move from one level to the next defined level. The movement between these two levels can be fast sometimes. The price does not have to reach the next level. Do not assume anything. Keep your eyes on the ball (the price). Do not forget the median line of the horizontal channel.
CCI 14 reaches the overbought region for the first time (notice the yellow vertical line).
Now draw your horizontal warning line (white line on the chart). Priority is for buying above the horizontal line and selling below it.
There is no need to guess it or force your intention on the price. Just keep your eyes on it and use your trading tools (TSTW24, TSTW SYS 08 or TSTW SYS 008). Note that the price broke above the line for one day and retest it the second day. Do not trade like old fashion traders by jumping into quick conclusions. However, on the third day, you want to watch it because it can fly away. And it did. If you miss it, do not cry or call your mother. Stay calm. It came back again to retest it before going up. As always watch the resistance levels when you are buying and pay attention to the support levels when you are selling. Price can change direction at these levels. Bank your profit or move your stop loss to secure your profit. It is your profit, do not allow anybody to take it from you.
The madness of trading the indicators is visible on this chart.
Notice the red days. Some traders were selling instead of buying. If one wants to sell in an up trend, one has to day trade carefully.
One does not want to sell in a bullish zone. The trend line in not broken.
When the CCI is above 100, the bullish momentum is strong. That is the theory. A strong bullish momentum leads to resistances, trend lines or channels being broken to the up side. One should also recall the definition of an uptrend. Higher lows and higher highs.
SOMETIMES THE PRICE CAN SUDDEN FALL WITHOUT PRIOR WARNING.
These are sharp corrections. They usually take place at major resistance levels at the end of the fifth Elliott wave. They are also the consequence of previous markets' manipulations and distortions. Please take time to master Elliott wave at
Click on the chart to open a CCI page.