Just following one indicator blindly and then cursing it or labeling it ineffective simply because you don't know how to use it... is pure stupidity. And market always punishes stupidity without any mercy.
Here is a line chart of nifty futures (5 min TF) plotted in white, with SMA-14 plotted in red. CCI(14) is plotted below it...
To use a Indicator one has to understand exactly what the indicator measures and then how it plots the same into meaningful information. CCI measures the distance between the close and simple moving average. Assume someone is sitting on the SMA and watching price move above and below it... what he sees is plotted as CCI...
Indicators don't make the price move... Price movement is interpreted in a particular manner and plotted on a graph. That's the key to working with any indicator...
In the trend-less phase (yellow rectangle), any trade that you take will invariably hit stoploss... CCI gave one inverted ghost, one tony trade, 2 zlr followed by a VT and then a ZLR which all failed... Does it make the indicator ineffective... No... If anyone is using a leading momentum indicator in a momentum-less phase of the market... then stoploss getting hit is the eventual result... again..why blame the indicator for your stupidity...
Now the next question is, how to isolate the good reliable signals from the bad ones... For that, woodies has added a LSMA at the zero line, a CZI and SW. He has also added a faster CCI to aid the decision making process... His system utilizes all of them to make rules for trending and counter trend rules... Does he mention anything about trading sideways markets... NO...
