Full Review of the CCI Divergence Breakout Strategy for Binary Options
In trading every day is a battle, some you win and some you lose but that doesn’t mean you lose the war. Just like a mighty warrior a trader must never give up, there is always a way to win, you just have to find and apply the right strategy. The quest in finding this proper strategy requires a lot of time and research, so today I want to help you and give you my view of a trading strategy called CCI Divergence Breakout, originally found here: http://forex-strategies-revealed.com/complex/cci-divergence-breakout, once again we would like to send a big THANK YOU towards all the traders that share their ideas upon winning this war.
How to use CCI Divergence Breakout Strategy
The strategy uses, as the name implies, CCI (Commodity Channel Index) an old school tool which you can find as a built-in indicator on all MT4 platforms. If you want it to look fancy like in the pictures, you will find at the bottom of the page the custom indicator, but I can assure you they are showing the same thing. Oh! I almost forgot: CCI setting is 14. Ok, we have our chart laid out… What next? Well… here comes the tricky part, we have to spot divergence between price movement and CCI, if you are not familiar with this concept don’t drop down your weapons, BOTS is giving a helping hand just click here and find out all the wonders of this tool.
Great! We have all of this in place, when do we go into battle? To spot our entry we have to draw a trend line and wait for it to be broken. For an uptrend we seek for a candle to close under our trend line, and for a downtrend we wait for a candle to close above the trend line. When you place a trend line, keep in mind that it has to connect at least two lows for an uptrend, or at least two highs for a downtrend. The recommended timeframes are 15 min and above, you just have to find the one you are comfortable with. Pretty simple, right? Here are some examples of Call and Put entries and also a recap of the entry rules:
1. Spot divergence: price makes a Lower Low and CCI makes a Higher Low;
2. Draw a down trend line;
3. Wait for a candle to close above the down trend line and open a Call option.
1. Spot divergence: price makes a Higher High and CCI makes a Lower High;
2. Draw a up trend line;
3. Wait for a candle to close under the uptrend line and open a Put option.
Why does the Strategy Suck?
First of all, divergence is not something easy to grasp by newbies, even advanced traders get sucked in by every tiny move of the market and forget to zoom out and look at the big picture. Another drawdown is that trend lines are subjective and where I have a clear trend line break, your trend line could be barely touched. And last, this is a counter trend strategy and this could be a weakness especially in strong trending markets where you will get a lot of fake trend line breaks, moments when you would think the trend is exhausted and start reversing but actually you’ll get caught on a retracement.
Why the Strategy Doesn’t Suck?
The thing that pops out is the clean charts, not cluttered with indicators, a matter that makes you keep your focus on what really counts, no… it’s not you, as most brokers make you believe with their overused slogan :) … it’s price movement. Divergence is a powerful tool and if you know how to wield this weapon it could place you on the winning side. Another advantage of this strategy is that it does not make you jump on every divergence you see; you have to wait patiently for a second confirmation (trend line break) and then pull the trigger.
Wrapping it up
The power of the strategy lies within the traders’ ability to master their skills: spotting divergence, recognizing trend, drawing trend lines and last but not least patience. Even if it is a counter trend system and everybody says “the trend is your friend” it’s good sometimes to change perspectives and at least have a taste of the “unfriendly” side. So, don’t be shy… just put on you armor, sharpen your tools and give it a try.
- Download FX Snipers CCI Indicator Files