The Woodies CCI indicator was designed by Ken Wood. His system is really simple if you follow the rules he established. Your work will be limited to the search for graphic patterns, as with the MACD, drawing the trendlines and catching the breakouts as with the RSI. When you observe the chart carefully and listen to the principles, you will get the best entry points with the Woodies CCI.
The Woodies system was originally designed for stock trading. The traders, however, tried to employ it in other markets as well. Today, the Woodies CCI is successfully used in all markets.
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How to add the Woodies CCI indicator to the chart on IQ Option
First, log in to your IQ Option trading account and choose a financial instrument for this session. Set the chart type and candles period. Then, find the indicators icon on the left side of the platform. Once you click on it, you will see a few tabs. Go to the Indicators tab and click Momentum. The Woodies CCI will appear on the right side of the list of analysis tools.
Another way to add the indicator is to start typing its name in the search box.
What is Woodies CCI?
The Woodies CCI is displayed in a separate window below the price chart. It is built on two CCI indicators of different periods. One is simply called CCI and its period equals 14. The other one, known as CCI Turbo, has a period of 6.
We can distinguish three horizontal lines, a middle line which is the baseline, the support line and the resistance line.
The histogram is yet one more important component of the Woodies CCI.
Defining the trend
Wood's method works best in the trending markets. The histogram is used to identify the trend. You will need to watch the colour of the bars in the histogram and their location.
You can assume there is an uptrend when the bars are green and above the baseline.
The downtrend can be identified when the bars are red and below the baseline.
How do you read a Woodies CCI indicator?
The Woodies CCI indicator produces quite strong signals for trading digital or binary options as well as CFDs. The traders appreciate the simplicity of this indicator. You do not have to strive and search for complicated graphic patterns or try to predict the direction of the price. What you have to do is to follow the rules I will describe below.
You have better chances for a profitable trade when you act along with the trend. Trading against the trend is much riskier and has brought a loss to many. Naturally, when you get the experience and make some money by trading in the direction of the main trend, you may experiment with using the system against the trend.
Four best entry points with the Woodies CCI
The Woodies CCI helps to identify entry points for your transactions. I will present the four best moments to enter the trade with the Woodies CCI indicator on the IQ Option platform.
A histogram bounce
This is a very basic signal you can obtain from the Woodies CCI indicator. The bars of the histogram define the trend and then they seem to return to the baseline. Instead of crossing the line, the bars reverse. This phenomenon is known as Woodies CCI zero line reject. This gives a confirmation of the trend and you should enter the trade here.
A trendline breakout
You can draw a trendline on the CCI histogram the same way you do it joining the lows or the highs of the price bars. The most favouring situation is when the bars go beyond 200 values, as the movements are then stronger. Your task is to observe the breakout from the trendline. It should happen as close to the baseline as possible. This is your entry point.
The support or resistance breakout
The horizontal lines of the support and resistance are occasionally broken by the histogram bars. And such a breakout is a signal to trade along with the trend. A signal is considered to be stronger when the support or resistance line connects more than two lows or highs. This happens, however, not so often. With the support or resistance breakout method, you should open a position on the candle that develops right after the breakout.
A V-shaped return
The last method to catch the entry point is recommended for more experienced traders as it requires trading against the trend. It may be also a good idea to invest less money in such a transaction than usual.
Watch the histogram bars. Sometimes they go beyond the level of -200 or 200 and then quickly reverse. This reversal forms a V-shaped bottom or top and signifies a correction in the prices. Enter the trade against the current trend.
Conclusion
Ken Wood has invented an interesting system for traders. It uses well-known features and principles such as the trendline or the breakouts. Nevertheless, the way he uses them is different.
Most traders are happy with the Woodies CCI and they do not even change the default settings.
Simply follow the rules provided by Wood and wait for the signals to enter the trade.
Make use of the IQ Option demo account. You can not only learn to apply a new indicator but also experiment with it. It is always a good idea to do this in a risk-free environment. And a demo account offers such a possibility.
Share your thoughts about the Woodies CCI in the comments section below.
Good luck!