Friday, March 9, 2012

CCI Technique: Shorting in a "Long Only" Environment

While I'm waiting for this short trade to pan out, I wanted to point out a potent shorting opportunity today that my CCI rules are dishing up. There are a couple things going on in the chart below to focus in on. In my early testing, one rule I developed was that whenever the 21MA (green line) of the CCI is above zero, the system will only go long. After looking at the data for a few days, something else caught my eye. The 2nd consecutive sell signal while in Long Mode & in Caution Mode (red line below 0) almost always resulted in a substantial sell-off in stocks. Only problem is that instances were low. To increase instances, I also included days when the red line exited Caution mode and popped up above zero. Still, I can only come up with 8 instances using SPY in the last few years. So this is just FYI and nothing to get too excited about yet....

Of those 8 trades, 7 of them were profitable within 1-9 days. Average holding time was just 4 days. Using TZA as the trading vehicle resulted in an average return of 13.96%. The 1 trade that took 9 days finally returned 5% but had a decent drawdown of about -8%. The other 6 winning trades suffered from very little or no drawdown. And there was 1 trade that didn't return a profit at all, as the market just continued to go straight up. (Hey, nothing is perfect!)

Today will be the 9th occurrence if we finish the day in an orderly fashion. Again, instances are very low but it appears a pullback here is a very good possibility.


  1. Very interesting, J.

    Could you talk a little about the signals; I don't quite see how they're generated.

  2. Sure, in brief... Buy signal on 2/10 was the result of CCI (white) dipping well below 21MA (green) while red line was trending above both. Exit that long position when CCI pops back above 21MA on 2/17.

    The buy on 3/6 was almost a no brainer as the CCI had not been below 0 since 12/21. The dip was almost guaranteed to be bought due to momentum alone. It was deep enough to send the red line below zero and put the system into Caution mode, which lowers the requirement of a sell to the CCI just having to go positive rather than get all the way back above green line. So the sell came yesterday. Today is another "caution" sell and a prime shorting op, theoretically.

    The dips on 2/29 and 3/5 did not generate buys for reasons I won't get into here for the sake of brevity. Cheers!

    1. PS - There was a buy signal back in late Jan and a sell on 2/1 that I neglected to label. Just fyi.

  3. J, I'm trying to get my TC2000 chart to look like yours. Would you mind posting the parameters you have set for the different studies? Thanks.

  4. If TC2000 is similar to freestockcharts, I'm not sure what additional details I can provide that aren't listed on the image. But here goes...

    I always chart w/ SPY (but only trade TNA/TZA).

    My CCI is period 14. (color:white)

    I have a 21 day simple moving average on that CCI. (color:green) That tells me whether I'm in long mode or short mode depending on if it's above/below zero.

    I also have a 9 period moving linear regression line on the CCI. (color:red) That is my caution line...meaning, caution the trend may be changing directions if it crosses the zero line opposite the green line.

    Notice the 21MA and 9LinReg are performed on the CCI...not SPY.

    Hopefully this helps...

  5. Got it - Thanks. I didn't have the 21ma & 9linreg on the cci.

    J, I don't want to seem pushy, but would you consider giving us a synopsis of how your signals are created from this chart? Thank you.