CCI Correction Trading Strategy Test Results

This series of short articles was inspired by a client of mine who wanted to see the historical performance of a variety of trading strategy ideas which he had read about on other educational trading websites.

To begin with, I searched Google for the term “trading strategies” and wanted to test any quantitative trading strategy ideas that could be learned in articles which ranked on Google’s first page.

One of the highest ranked sites if searching for “trading strategies” was stockcharts.com, so I’ll begin with their CCI correction trading strategy article.

As per the images within the article, I will be testing the strategy on the SPY ETF since inception.

Please also note that $0.01 per share transaction costs will be simulated ($2 minimum per trade).

Entries and Exits made on following days open.

CCI Correction Trading Strategy Directional Bias

Step one of the CCI trading strategy is to use a 26 week period CCI to define the “bigger trend and directional bias”.

The following chart plots the 26 week period CCI in the middle pane and the CCI trend direction histogram in the lower pane. Note that a CCI cross above 100 is supposed to encourage a bullish bias until there is a cross below -100, which should encourage a bearish bias. And vice versa.

For easier analysis I have also colored the charts green when a bullish bias exists and red when a bearish bias exists.

CCI Correction Trading Strategy Entry Rules

Step 2 of the CCI correction trading strategy is to use the daily timeframe charts to time an entry.

  • If the weekly directional bias is bullish, only bullish trades may be entered.
  • If the weekly directional bias is bearish, only bearish trades may be entered.
  • A bullish entry signal is a 26 day period CCI crossing below -100 and then above the zero line.
  • A bearish entry signal is a 26 day period CCI crossing above +100 and then below the zero line.

The following chart plots the daily timeframe but note that the weekly directional bias is used to color the charts.

The bottom pane of the chart shows when a Bullish (blue) and Bearish (red) entry signal occurred in the daily timeframe.

 

In a nutshell, the idea behind this strategy is to trade in the direction of the longer-term trend using a shorter-term timeframe to decide when to enter the market.

If the weekly direction is bullish, a daily CCI cross below -100 and then back above zero is supposed to indicate that the market had made a retracement within a uptrend (the cross below -100) and then has resumed the uptrend (the cross above +100).

The following chart plots the three steps of the strategy.

  1. Define the longer term direction of the market.
  2. Wait for the shorter-term retracement.
  3. Enter when the shorter-term direction resumes the uptrend.

CCI Correction Trading Strategy Test Results

The problem with testing the above strategy is that there is no explicit exit signal described for open positions.

So for this article I will simply test the strategy with exit signals being a bearish daily timeframe signal if long and a bullish daily timeframe signal if short.

For example:

Beneath you will find the statistics report, equity curve and monthly breakdown of returns produced by the test of the above strategy:

As the author of the original article stated, the CCI correction trading strategy shouldn’t seen as a stand alone system and the strategy was only provided as a starting point for further system development.

If you’d like me to modify and test any of the entry or exit rules in this article, or if you’d like me to test any other strategy that you’ve read about in another publication then please feel free to leave a comment below.

All the best,

Llewelyn

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