Forex Trading Price Action Is Better Than Using the CCI

There’s a newer article on Investopedia titled "Channel Breakouts with the CCI" by Schlossberg and Lien.  I read it and don’t see why you would want to use this strategy when there’s a much better alternative.  

You can read the article to get a more in depth explanation of the strategy but I’ll try to give a quick synopsis.  The strategy looks to trade higher highs and lower lows of the commodity channel index.  For a long trade, you wait for a reading to exceed +100 and enter a trade on the close of the candle if the reading exceeds the previous peak reading.  For a short trade, you do the opposite.    I remember reading about this strategy a couple of years ago when I was an indicator junkie.  I found it appealing but that was then.  Now, I use indicators at an absolute minimum.  

If you want to trade momentum especially intraday, you have to get on quickly while it lasts.  I don’t think a lagging indicator allows you to do this.  There’s a simple alternative to this strategy, trade breakouts of previous day highs or lows.  There’s other alternatives too if you just set your mind to finding them and doing testing.  For instance, you can follow all the rules of the strategy but not use the CCI, use price peaks instead.   Remember, every indicator is a derivative of price.  

Looking at charts, the CCI indicator is always late to the game and sometimes falsely identifies areas of momentum especially when the price is trading in between the previous days high and low range.  So while I can’t say that this strategy won’t make you money, I think that there are other ways of identifying momentum that give you a better chance.  

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