Ch. 9Strategy #339

Strategy #339

CCI Extreme Mean Reversion

Entry Logic

  • Long Entry: CCI (20) crosses below -100.
  • Short Entry: CCI (20) crosses above +100.
  • Confirmation: CCI crosses back above -100 (for long) or below +100 (for short).
  • Timeframe: 60-minute.
  • Location: At a point of significant deviation from the mean.
  • Market Condition: Trending market experiencing a pullback.

Exit Logic

  • Profit Target: CCI reaches the zero line.
  • Scaling Out: No.
  • Trailing Stop: No.
  • Signal Failure: Exit if CCI makes a new extreme.
  • Opposite Signal: Exit on an opposite signal.
  • Time Expiration: 8 bars.
  • Momentum Loss: Exit if price stalls.

Stop Loss Structure

  • Hard Stop: Below the low of the signal candle.
  • Soft Stop: If CCI fails to move towards the zero line.
  • Max Dollar Loss: $500.
  • Max Percent Loss: 1%.
  • Structural Stop: Beyond a recent pivot.

Risk Management Framework

  • Risk Per Trade: 0.75%.
  • Daily Limit: 3 trades.
  • Weekly Limit: 4%.
  • Max Drawdown: 12%.
  • R:R Requirement: 2:1.

Position Sizing Model

  • Sizing Approach: Fixed fractional.
  • Volatility Adjustment: Not used.
  • Conviction Sizing: No.
  • Scaling In: No.
  • Scaling Out: No.

Trade Filtering

  • Market Conditions: Best in trending markets during pullbacks.
  • Setups: Look for CCI to reach an extreme and then reverse.
  • Instruments: Commodities and futures.
  • Time Restrictions: None.
  • Chop/News Avoidance: Yes.

Context Framework

  • Trend Direction: The trade is with the dominant trend, buying a dip or selling a rally.
  • VWAP Relationship: Not a primary factor.
  • MA Relationship: The entry often occurs near a key moving average.
  • Range Location: Not a range-based strategy.
  • Higher TF Alignment: The higher timeframe should be in a clear trend.

Trade Management Rules

  • Breakeven: No.
  • Scale Out: No.
  • Add Size: No.
  • Fast vs Slow Moves: Works for both.

Time Rules

  • Optimal Window: Any.
  • Times to Avoid: Illiquid periods.
  • Session Notes: CCI is a popular indicator in the commodities markets.

Setup Classification

  • A+ Setup: CCI extreme occurs at a major support/resistance level in a trending market.
  • A Setup: CCI extreme with a reversal candle.
  • B Setup: CCI extreme alone.
  • C Setup: CCI extreme against the dominant trend.

Market Selection Criteria

  • Instruments: Crude Oil, Gold, Silver.
  • Volume: High.
  • Volatility: Moderate.

Statistical Edge Metrics

  • Win Rate: 55%.
  • Avg Win: 2.2R.
  • Avg Loss: 1R.
  • Profit Factor: 1.76.
  • Expectancy: +0.4R.

Failure Conditions

  • Market Conditions: A trend reversal.
  • Specific Scenarios: When a pullback turns into a full-blown reversal.

Psychological Rules

  • Discipline: Must be patient and wait for the CCI to cross back over the extreme line.

Advanced Components

  • Regime Detection: Use a long-term moving average to define the trend.
  • Filters: Only take trades in the direction of the 200-period MA.
  • Correlation: Be aware of how related commodities are moving.
  • MTF Alignment: The daily chart should confirm the trend direction.

Location

  • Strongest: As a pullback entry in a well-established trend.
  • Weakest: In a choppy, sideways market.