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CCI Averages Dynamic Trend Continuation Forex Trading Strategy

The trend continuation strategy is one of the easiest strategies to trade that can produce consistent results. This is because trading with a trend usually means a higher probability of winning on each trade.

There are several ways to trade a trend continuation strategy. One is a pullback trade while the other is a momentum signal trading in the direction of the trend. This strategy uses elements of both – waiting for a pullback while using momentum as an entry trigger.

CCI Average – Pre-filter indicator

CCI Average – Pre-Filter Indicator is a modification of the Commodity Channel Index (CCI) with a smoothing element for its oscillations.

The classic Commodity Channel Index is a good oscillator to identify momentum, trend, and overbought or oversold market levels by comparing current prices and historical averages. Although the classic CCI is a decent oscillator, it has one drawback and that is its vulnerability to spurious signals. The classic CCI is a very responsive oscillator, which is why it draws lines that can be very jagged and erratic at times. This makes CCI lines very vulnerable to false signals due to price spikes and market noise.

CCI Average – The Pre-Filter Indicator modifies the classic CCI to eliminate its erratic oscillations by adding a smoothing factor to it. However, instead of using the usual route of smoothing the oscillator's line by converting it to a moving average, this indicator reverses this procedure. Instead, the short-term moving average of the price is first calculated. Then calculate the CCI of the moving average line. In fact, for smoothed inputs, prices are calculated on the CCI formula.

For this approach to work, the moving average must be defined as a very fast moving average. This indicator has been tuned to use the 5 bar exponential moving average (EMA). However, this variable can be changed in the settings.

This indicator also has markings at -100 and 100 levels. The oscillator line usually draws a silver line when it is in the range -100 to 100. Then turns orange-red when the line drops below -100. Instead, it turns lime green when the line breaks above 100.

Users can interpret bullish momentum when the line crosses the 100 mark and bearish momentum when the line drops below the -100 mark.

CCI Average Dynamic Trend Continuation Forex Trading Strategy For MT5 - 1

Bollinger Bands

Bollinger Bands are a versatile technical indicator that can be used to show volatility, trend, momentum, and overbought and oversold price levels.

Bollinger Bands draw three lines that tend to curve around price action. The middle line is the simple moving average (SMA) usually set to 20 bars. The outer line is the standard deviation shifted above and below the center line, which is usually set at two standard deviations. These three lines create a channel or band-like structure that covers the price.
Bollinger Bands can be used to identify trend direction. Price action usually remains at the midpoint of the Bollinger Bands, where the market is trending.

Since this indicator is based on the standard deviation, it can also be used to identify volatility. The band contracts when the market is in a market contraction phase and expands when the market is in a market expansion phase.

Bollinger Bands are also commonly used as oversold and overbought markers. A decline in price action below the lower line indicates an oversold market, while a break in price action above the upper line indicates an overbought market. Both are the best conditions for an intermediate reversal.

Conversely, the same outline can also be used to identify a momentum breakout that occurs after a market contraction phase. A momentum candle that closes outside the Bollinger Bands right after a period of market contraction indicates a possible momentum breakout scenario.

CCI Average Dynamic Trend Continuation Forex Trading Strategy for MT5 - 2

Trading strategy concept

CCI Averages Dynamic Trend Continuation Forex Trading Strategy for MT5 trades trend continuation settings, which are confirmed by momentum signals.

Bollinger Bands indicator is used to identify and confirm trend direction. It is based on half of the Bollinger Bands price action in general. Trades are then made only in the direction of the trend, as shown by Bollinger Bands.