EMA and CCI FOREX strategy

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Indicators have been very popular among traders for years. They are useful for both day trading and medium-term investing. Unfortunately, often, instead of focusing on a particular indicator and making it the base, traders test too many of them. Even worse, in such combinations that they offer them conflicting signals. Consequently, effective trade turns out to be impossible for them. A good method for quick profit making can be the CCI + EMA Strategy using the CCI index supported by an exponential moving average .

Tools used in the CCI + EMA Strategy

The first tool used in the strategy is the CCI indicator . This is the best moment to explain what is behind this name and how to use it to generate a satisfactory rate of return. CCI stands for Commodity Channel Index – Commodity Channel Index. Why the goods? Because the goal of the creator was to analyze the instruments of the commodity market. Later, however, it turned out that this tool also works great on the Forex market or stock exchanges.

The CCI measures the deviation of the price of an asset from its average value. In practice, this means that if it takes high values ​​(above 150), the current prices of the instrument are extremely high in the selected period. On the other hand, if it takes values ​​below -150 current prices are extremely low.

In this strategy, the CCI is set to 30 periods. The oscillator works best on lower time frames, in this strategy it will be used in the M30 chart.

The second tool that the CCI + EMA Strategy uses is the Exponential Moving Average . It is a weighted average, its weights vary exponentially. It is calculated on the basis of a formula that gives the higher weight to the current periods and the less weight to distant ones. Each period has a different weight.

For example, with an EMA average of 5 periods, the price that is 5 periods away from the current one will be the least important, and the last one will be the most important. As a result, the EMA runs closer to the price than the simple moving average and is more responsive to strong movements on the chart – the latest changes have a greater impact on it. For this strategy, we will use two EMAs, an 8-period and a 26-period, to identify the current trend.

CCI + EMA strategy – getting into position

When trading according to the rules of the CCI + EMA Strategy, one should look for a change in the trend prevailing in the last hours. However, how do you identify it first? For this we will use the exponential moving averages:

  • If the EMA 8 is above the EMA 26 average, we have an upward trend at this point
  • If the EMA 8 average is lower than the EMA 26 average, there is now a downward trend

So when is the best time to enter the position? Let’s start with a buy order . We open them when:

  • The average EMA 8 breaks the average EMA 26 from below
  • The CCI index is just above zero and rising

CCI + EMA strategy – buy order example:

Here we have an entry according to the conditions described above, opening price 1.30086 (spread costs should be added).

However, we open a sales order when:

  • The average EMA 8 from above breaks the average EMA 26
  • The CCI index is just below zero and is falling

CCI + EMA strategy – example of a sale order:

The above entry complies with the mentioned conditions, opening price is 1.28829.

Exit position

The CCI + EMA strategy does not use a rigid Take Profit level. On the other hand, the Stop Loss should be:

  • Just below the last hole in the long position
  • Just above the last peak in a short position

However, if the chart is too many pips from the above-mentioned extremes, you should set a Stop Loss order to limit the risk level:

  • The preceding candle in the long position
  • Above the preceding candle in the short position

We open such a position only if the loss does not exceed the percentage value of the deposit assumed by us.

We only close a buy order if any of the following occurs:

  • The CCI index is above the level of 150, but its value has started to decline
  • The average EMA 8 from above breaks the average EMA 26

Example of closing a long position:

In this case, we had the first scenario. The stop loss was at 1.29766 and the position should have closed at 1.30886.

Instead, a sell order should be closed when any of the following scenarios arise:

  • The CCI index exceeded the level of -150, but its value began to increase
  • The average EMA 8 breaks the average EMA 26 from below

Example of closing a short position:

The first scenario also occurred here. The stop loss was at 1.29200 and the position should have closed at 1.28264 (spread costs should be added).

CCI + EMA strategy and capital management

Money management is important in any strategy, because its lack can lead to severe, irreversible losses on the investor’s account. The trading method using the CCI indicator and exponential moving average is quite specific and has a lot of trades.

The best way to achieve the goal is to decide how much equity the trader is willing to risk per day. According to the literature on risk control, the value that we are willing to lose on a given day should not exceed 2% of the deposit and a maximum of 1% on a single transaction .