CCI indicator is not the number one divergence technical indicator.
However, one can use it for divergence trading purposes.
When it comes to divergence trading there is no equal to the
stochastic oscillator. This article will help CCI traders avoid CCI
divergence trading mistakes.
Facts About CCI Divergence Trading
a/ CCI divergences are warnings, but the price must confirm them (direct signals).
b/ The CCI oscillator generates more false divergences than the stochastic oscillator.
c/ CCI divergences are often leading trading setups (or acute early warning), because they occur well before the direct trading signals.
d/ Always use different times frame when trading CCI divergences, and be very patient. Do not just buy or sell straight away just because of CCI divergences.
e/ There are unique CCI divergences that I prefer to call CCI discrepancy.
f/ All non confirmed CCI divergences must be disregarded.
A non confirmed CCI divergence is a CCI divergence that is not confirmed by the price-action or direct trading signal. They are not necessarily false divergences, but divergences or warnings that the price did not validate.
g/ One must always trade CCI divergences in conjunction with trend lines and the price-action.
Trend lines are excellent trading tools that help trade CCI divergences.
How To Improve CCI Divergence Trading
One will quickly improve CCI divergence trading if one always follow the correct steps.
Acknowledge the CCI divergence or warning and
switch your attention to the price-action.
Wait for the validation of the CCI divergence.
The validation of the bearish CCI divergence is in place when the price exhibits weaknesses or breaks below and retests a bullish trend line.
Validation of a bullish divergence takes place when the price exhibits a strength or breaks above and retests a bearish trend line.
Use different times frame to control the risk.
Never buy or sell straight away after the validation because trading signals do fail.
Close the trade if the signal fails on the signal time frame.
The CCI divergence pre-warns technical traders about a possible reversal whether the price is rising or declining.
Though, one should not discount the warnings, it does not necessarily mean that the reversal will occur. It is only possible. As I always say to traders, one should not cut corners. In other words, one must wait for the price-action confirmations and do another verification. If it is authenticated, one must use a top-down trading method to control the risks.
Finally, if one enjoy trading divergence trading signals, it is more efficient to use the slow stochastic (8,3,3) instead of the CCI indicator.
I always enjoy sharing practical CCI trading tips and tips on both our YouTube channel, and this this website. I
hope that this article has been useful to you, and will help you avoid common CCI divergence trading mistakes.
If that is the case, feel free to share this article with your friends on various social websites.
Happy CCI divergence trading to all. Speak soon.