The CCI itself is a momentum indicator. Such indicators all work in the same basic fashion - they plot the difference between a "fast" measure of price and a "slow" measure. The MACD for example, measures the difference between a fast and slow moving average. In the case of the CCI, the "fast" measure is the price itself, and the "slow" measure is a moving average. Thus when we look at the CCI, what we are actually seeing is measurement of the deviation of price from its moving average, normalised to fit on a scale of roughly -250 to 250. A chart example will make this clearer。

Here we have plotted a 14 period Exponential Moving Average (EMA) - the orange line - and a 14 period CCI - the lower graph. In simple terms, the "0" line on the CCI section of the chart can be thought of as representing the EMA, and the CCI line itself (the yellow line) as representing the price.

Thus we can see that at the extreme left of the chart, as the price accelerates through its EMA, so the CCI crosses above the zero-line. When the price consolidates and the EMA catches up with it, so the CCI starts to fall back towards the zero-line. The price rises again, but this time not by as great a magnitude as the previous move, and this is seen on the CCI graph by the CCI rising but not reaching it's previous high. 【外汇高手www.Fxer.cn收集整理】

This "divergence" between the price making a new high and the CCI failing to do so is a signal that momentum in the up move is slowing, and that the move may be over, at least for the time being. This is essentially how all momentum indicators work.

"Woodies CCI" system then, outlines a number of tradable patterns made by the CCI. His chart setup is simple enough, at its most basic he uses a 14-period CCI, and that's it. Some followers of Woodie even take the price of their chart, preferring to trade from the indicator patterns alone - although we don't recommend this. The Woodie patterns fall into two main categories, trend following and counter trend.

Trading Woodies CCI On ForexOne of the most commonly traded Woodie CCI patterns is the "zero line reject" - the CCI bouncing from its zero line. Given what we know about what the CCI is telling us, we can see that a zero line reject is actually the price bouncing from it's Moving Average. But the CCI can provide additional confirmation for the trade. Here is the same chart as above, which is in fact the GBP/USD pair, with a trend line drawn in. However the trend is not drawn on the price as you might expect, but on the indicator:

The highlighted area shows the CCI bouncing from the zero-line, but there are two other indications given by the CCI that confirm this trade:

1 - The CCI has been above the zero line for more than six consecutive bars. This is a signal that the overall trend is upwards, and hence we are looking for Long trades. If you think back to what the CCI measures, this is common sense because it means the price is staying above its moving average.
 

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