Rules for a Trading Strategy Using 20-SMA and CCI-(20,+25,-25)

Hello everybody,

I have come up with a strategy regarding which I’d very much appreciate feedback from traders more experienced than I (which essentially means just about everybody).

If someone could backtest this strategy and let me know the results, I’d also be most appreciative. I am not capable of backtesting it, except manually, and that takes a LOT of time. However, the small amount of backtesting I have been able to do indicates that it is a very profitable strategy.

Here are the rules of this strategy:

  1. This strategy is valid for all time frames longer than 10 minutes, and for all major currencies and trading instruments.

  2. Use regular candles to show the price.

  3. Draw the 20-SMA line in a distinctive colour.

  4. Add the CCI-(20,+25,-25) indicator.

  5. For any given trade, pick a time frame for your trading chart, and stick to it.

  6. Determine the slope of the 20-SMA for the candle that just closed (and only for that candle); trade only in the direction of this slope, and only if it also agrees with the slope of the CCI line at that point, or if the CCI line slopes more strongly in one direction than the 20-SMA slopes in the other direction; in that case, trade in the direction of the CCI line. Otherwise do not trade that chart; look for another time frame or currency pair to trade.

  7. Determine the percentage of your account that you will risk at any given time while trading - we will call this your “risk percentage”. Stick to that percentage throughout the use of this strategy - over weeks and even months if necessary.

  8. On your chosen trading chart, draw support and resistant zones. If the price is likely to hit a support or resistance zone, do not trade on that chart; look for some other time frame or currency pair to trade.

  9. Open a long trade when the CCI line crosses the zero-level or the +25 to the positive side. That is, if the CCI line crosses the zero-level or the +25 level upwards, open a long trade. And open a short trade when the CCI line crosses the zero-level or the -25 to the negative side. That is, if the CCI line crosses the zero-level or the -25 level downwards, open a short trade.

  10. For any given trade, the Stop Loss (SL) should equal to the average of the ATR of your chosen time frame, plus the spread (or the average spread, if you use a broker who offers variable spreads, like OANDA).

  11. Your Take Profit (TP) should be in five stages. Use one-fifth of your predetermined risk percentage amount for each stage of the trade. (For instance, if your predetermined risk percentage is 2% of your account, then each stage of the trade should use exactly 0.4% of your account - or as close to 0.4% as possible. Or, if your predetermined risk percentage is 2.5% of your account, then each stage of the trade should use exactly 0.5% of your account - or as close to 0.5% as possible)

  12. The five stages of TP should be as follows:

  • The first TP should be equal to the the average ATR of your chosen time frame;

  • The second TP should be 2x the the average ATR of your chosen time frame;

  • The third TP should be 3x the the average ATR of your chosen time frame;

  • The fourth TP should be 4x the the average ATR of your chosen time frame;

  • The fifth TP should be 5x the the average ATR of your chosen time frame.

  1. Move the SL to break-even as soon as the first TP has been hit.

  2. Move the SL once more as soon as the second TP has been hit, this time to where the first TP was hit; and as soon as the third TP has been hit, again move the SL to where the second TP was hit, and so on. After the fourth TP has been hit, let the fifth stage run; exit it as per the rule below.

  3. After the first, second, third or fourth TP has been hit, but the SL has not been hit, if the price moves to the other side of the 20-SMA, or the CCI line goes below (for a long trade) or above (for a short trade) the +25 or -25 level (as the case may be), exit all open trades. (Don’t exit any open trades if the first TP has not been hit, however - with the two exceptions given below.)

  4. If your open trades seem to be stagnating or going towards a loss, while another currency pair or time frame seems to show much better opportunities for trading, then at your discretion close all open trades, and if you so desire, set new trades in the more promising currency pair and/or time frame.

  5. If you are not going to be able to monitor your trade but the SL has not been hit, and your trade seems to be going badly, or the trend seems to have turned around, then at your discretion close all open trades - even if necessary, at a small loss (which will of course be less than the SL).

  6. Once your first stage has taken profit and you have moved your stop loss to break-even, there is no more risk to you; so at your discretion, look for some other trading opportunity using some other currency pair or trading instrument, and again open a new 5-stage trade, risking as much as your predetermined risk percentage as described above … or as much as is possible depending upon how much of your account is tied up in the trade that’s still open.