I'm not sure if this method will work or not, but that is why we test.\u00a0 The great thing about this method is that it is available publicly, so I can show it to everyone and you can do your own tests.\u00a0 I've tried to make this post as detailed as possible so you feel comfortable doing it yourself and so you can apply the process to other strategies that you come across.<\/strong><\/p>\n But before we get started, here are a few things that you have to understand…<\/p>\n Now that we have that out of the way, let's get down to it.<\/p>\n The CCI Divergence Breakout Strategy<\/a> is courtesy of Urban Forex<\/a>.\u00a0 It is a trading community created by Navin Prithyani<\/a> that is based on a core set of Forex trading strategies. Their trading methods are provided for free as a lead for their Forex Watchers<\/a> training website.<\/p>\n First, we need a plan. Here are is the testing plan for this strategy.<\/p>\n The first thing you need is a testing plan.\u00a0 Here are the parameters for my first test.\u00a0 You can test on any pair or any time frame above the 15 minute (according to the Urban Forex website), but I want to provide a concrete place to start, so I have picked a specific time and pair.<\/p>\n Entry<\/strong><\/p>\n As the name suggests, this is a strategy that looks for divergence between price and the CCI indicator.\u00a0 For a long entry, price must be trending upwards and CCI must also trend upwards, then bounce. After a CCI bounce, connect the lows in price with a trendline.\u00a0 Once price breaks the trendline<\/a>, wait for a retest of the trendline from the underside.\u00a0 Look for a closed candle that bounces to enter the trade.<\/p>\n Do the opposite for a short trade.\u00a0 I will provide chart examples of both long and short trades at the end of the testing plan.<\/p>\n Stops<\/strong><\/p>\n The Urban Forex site says to set the stop, depending on how steep the trendline is.\u00a0 The steepness of the trendline can really depend of how your chart is setup.\u00a0 Since I'm not a big fan of subjective rules like this (at least not on the first test), so I'm going to set a rule that is going to use the more conservative stop.<\/p>\n Therefore the stop will go one pip above the nearest swing low, for a long. At the close of each candle, move the stop to one pip below the low of the last candle, for a long.<\/p>\n Do the opposite for a short trade.<\/p>\n Profit Target<\/strong><\/p>\n Use two lots.\u00a0 The longer term target for the second lot should be the next 00 or 50 level.\u00a0 This should be at least a 1:1 reward to risk<\/a> ratio. The first profit target should be at 1:1 reward to risk, if it is less than the 00 or 50 target.\u00a0 If there is less than a 1:1 ratio on this first profit target, do\u00a0 not take the trade.<\/p>\n Exit<\/strong><\/p>\n If the first profit target is hit, then exit at the nearest 00 for 50. Otherwise, stay in the trade until the stop is hit.<\/p>\n Examples<\/strong><\/p>\n Here is what a long trade would look like.<\/p>\n This is a short trade example.<\/p>\n Since this trading method is so simple, it is easy to setup a backtest.\u00a0 Open your favorite backtesting software<\/a>.\u00a0 I use Forex Tester<\/a>, so I'll use that as the example.<\/p>\n If you want to see how to setup your first Forex Tester backtest, read this tutorial<\/a>. Once you setup your backtest, come back to this post to see how to test this strategy specifically.<\/p>\n Next click on the List of indicators<\/em> icon to add an indicator.<\/p>\n Then add the CCI indicator to the EURUSD chart.<\/p>\n Make sure that it is set to 14 periods.<\/p>\n When you see a trade setup, first calculate your stop loss.\u00a0 Then make sure that your 00\/50 target is at least equal to the number of pips in your stop loss. If it is not, don't take the trade. Follow the rest of the rules outlined above for each trade.<\/p>\n Use a risk spreadsheet to calculate the number of lots to trade.\u00a0 You can create one yourself, or you can download one below for free.<\/p>\n If you want to create one yourself, here is the calculation.\u00a0 First, figure out your maximum dollar loss, based on a percentage of your account.\u00a0 For example, if you have a $5,000 account and you only want to risk 1% per trade, that would be $50 of risk.<\/p>\n $5,000 x 0.01 = $50<\/strong><\/p>\n Then calculate the cost per pip, based on the lot size that you set up above.\u00a0 If you are using my settings, then the cost per pip will be $0.10.<\/p>\n This is based on a lot size of 1,000 currency units.\u00a0 If this is confusing, just follow my settings and do a test.\u00a0 You will start to get a feel for the numbers.<\/p>\n Also compare your results in backtesting<\/a> to the results in your demo account.\u00a0 That will help you adjust your backtesting settings, if necessary.<\/p>\n Multiply your cost per pip by the number of pips of risk.\u00a0 So if your stop loss<\/a> is 100 pips, your total dollar risk by your cost per pip.\u00a0 In this example, that means the following.<\/p>\n 100 pips x $0.10\/pip = $10 risk per lot<\/strong><\/p>\n Then divide the total risk by the risk per lot to get the number of lots.<\/p>\n $50 \/ $10 = 5 lots<\/strong><\/p>\n So you should trade 5 lots in this example.\u00a0 That would allow you to only take 1% risk of your total account on the trade.\u00a0 The calculator spreadsheet in the download section will help you do this easily or you can create one yourself.<\/p>\n Now do that same thing in your broker's trading platform.\u00a0 Since most people use Metatrader, I'll use that as an example.\u00a0 The CCI\u00a0 is a default indicator in Metatrader.\u00a0 Add it to the Daily chart of the pair you backtested and monitor the signals.<\/p>\n Next, setup a free account with MyFxBook<\/a>.\u00a0 This website will connect to your demo account and collect your trading results.\u00a0 Follow their documentation to connect your account.<\/p>\n It will give you reports that tell you things about your trading results that would otherwise take a long time to do manually.\u00a0 To learn how to use MyFxBook, watch this video<\/a>.<\/p>\n Click on the button below to download the Risk Calculator Spreadsheet and Strategy Template for backtesting.\u00a0 It will make it easier for you to do your tests.<\/p>\nWhy I Am Writing These Posts<\/h2>\n
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Keep These Things In Mind<\/h2>\n
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Presenting The Urban Forex CCI Divergence Breakout Strategy<\/h2>\n
Testing Plan<\/h3>\n
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![\"long\"](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/long.jpg\")
<\/p>\n![\"short\"](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/short.jpg\")
<\/p>\nHow To Setup A Backtest<\/h2>\n
![\"add-indicator\"](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/add-indicator.jpg\")
<\/p>\n![\"CCI](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/cci.jpg\")
<\/p>\n![\"cci-settings\"](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/cci-settings.jpg\")
<\/p>\nHow to Setup A Forward Test<\/h2>\n
![\"CCI](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/add-cci.jpg\")
<\/p>\n![\"myfxbook\"](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/myfxbook1.jpg\")
<\/p>\nDownloads<\/h3>\n
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![\"button-get-it-now\"](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/button-get-it-now.png\")
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