Primary Swing Point

One Single Indicator

Accurately Predicts
Every Price Turn
by

Wendy Kirkland

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 Copyright  ©  2020 by Wendy Kirkland 

All right reserved. No part of this book may be reproduced, scanned or distributed 
                                                                                     In any printed or electronic form without permission

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 CCI Fin Option Strategy
The pattern defined in this manual is not designed for or based on any particular trading
program. It is one of the 8 patterns used in the QQQ MERIT trading program, but it is
also a pattern that can be applied to other strategies, perhaps one you are already
utilizing.

So if you are interested in a new simple and easy to apply pattern-based-strategy, read
on.

This strategy uses 60 minute time frame charts and only one indicator for entry and
exits. It doesn't get any simpler or more effective than that.

Commodity Channel Index (CCI)

The indicator we will briefly study is the Commodity Channel Index (CCI). The CCI was
initially developed for commodities, but it works equally well for equities. The CCI is
similar to the Williams%R if that is an oscillator you are familiar with.

Oscillators are a group of chart indicators that primarily swing from one extreme of their
scale to the opposite in exaggerated response to movement in price.

An oscillator’s course is usually drawn in a separate window on the chart, so its

movement can be seen in relation to the candlesticks. As the stock price moves up and
down, the oscillator line will also move, but in a magnified manner, causing it to swing
from one extreme to other. Oscillators form a visible picture that is easily read.

Overbought and Oversold

Equity prices often move in cyclical patterns over time. Much of this movement is
caused by market sentiment or the psychological aspects of greed and fear, particularly
in the short term.

An oscillator determines when a market is in an overbought or oversold condition. When

the oscillator line reaches an upper extreme, the equity is overbought. When the
oscillator line reaches a lower extreme, the equity is oversold.

Overbought is a technical condition that occurs when prices are considered too high,
not sustainable, and apt to decline. A sharp price advance on a daily chart from, say,
$100 to $125 in two weeks might lead to an overbought condition. So, when you study
your chart and see that the CCI exceeds 100, an equity might be considered to be
overbought.

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On intraday charts, like the 60 minute chart, these swings happen over the course of a
few days.

It is important to keep in mind that overbought does not necessarily mean bearish, but
merely infers that a stock has risen too far too fast and might be due for a pullback (the
need to catch its breath before further advances.)

Oversold also is a technical condition and is the reverse of being overbought. An

oversold condition occurs when prices are considered too low and ripe for a rally. A
sharp price decline from, say, from $73 to 64 in a few days time might lead to an
oversold condition. When the CCI drops below -100, an equity might be considered to
be oversold.

It is also important to keep in mind that oversold does not necessarily mean bullish, but
merely infers that the stock fell too far too fast and may be due for a reaction rally.

Another way to think of this is, the terms overbought and oversold could be rephrased
as “too much buying” or “too much selling.” Because of the interplay between profit
taking and new buying in relation to stock price movement, a tendency exists for stock
prices to reside within a short pendulum swing, even within a longer up or downtrend.
Stocks can go up one day and down the next (but perhaps less than the gain the
previous day), back and forth they go, yet in the end, this two-step dance they’re in
follows and adds to a main up or down trend. That means that no matter how much they
zig back toward the middle and zag back again, they are still moving upwards or
downwards. This tendency for a stock or index to return to middle ground is always
present and can be used to our advantage.

The signs and signals given by the CCI provide a visual barometer of
oversold/overbought conditions. The full scale of CCI oscillator is from “100” to “-100.”

 100 signifies full overbought and -100 signifies full oversold.

 The zero level is the balance point or neutral ground.

 Extreme overbought runs from 100 to 200. Extreme oversold is -100 to -200.

Extreme overbought and oversold above 200 or -200 is what we are going to use in this
strategy. I will go into the details as we proceed, for now become familiar with the
indicator if it is new to you.

The default number of periods for the CCI is a setting of 20. I am eventually going to
change this to 30 to smooth out the line.

The CCI is the only indicator to be added to the chart.

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For now, take a deep breath, and let’s start dig a little deeper before we add the
indicator to the chart. We will discuss the information, tying everything together with
each chart as we proceed. This is an information layering process.

The CCI is a versatile indicator that can be used to identify a new trend or warn of
extreme conditions. In general, CCI measures the equity’s current price level relative to
an average price level over a given period of time. The CCI registers a high level when
prices are far above their average. Conversely, the CCI registers a low level when
prices are far below their averages.

The CCI creates a pattern that I call fins. These fin shapes can be used to identify
overbought and oversold levels.

On the chart below, I’ve added a CCI indicator. For now I just want you to see the “fins”
as I call them (like dolphin or shark fins) as they rise above the 100 level or fall below
the -100 level. And then, on the next chart, we will discuss the moves above and below
extreme overbought and oversold.

I usually place the CCI indicator under the candlestick chart. Notice on F5 Network
(FFIV) chart below the (top) areas on the CCI indicator that are green (since the manual
is black and white, I will note the colors) are areas that are said to be overbought and
the brown areas are oversold.

These green and brown areas are what I refer to as fins. A drop from the overbought
area of 100 shows that FFIV is overbought and losing strength. Likewise, a rise from ---
100 shows that FFIV is gaining strength and will perhaps soon rise in price.

As you can see if you take a few moments to study FFIV’s chart, CCI can give false
signals such as the periods between September 12th and 17th. In these areas, the
indicator either dropped, but did not continue to the opposite side of the indicator but
returned to the area it just left.

Please take a moment to study how the CCI corresponds or perhaps predicts the
movement of the candlesticks.

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Courtesy of Stockcharts.com Fig. 1

The CCI measures the difference between a security’s price change and its
average price change. In connection with the CCI Fin strategy, you will be using the CCI
as the main indicator.

When the CCI is at a super high point above 200, which is a high positive,
indicating that prices are well above their average and overbought (though there is no
upside limit), a drop below 200 signals that strength is leaving the equity. This drop can
happen well before an actual drop takes place. Thus, it is a leading indicator.

A drop below 200 signals that an undercurrent of change is taking place that may
yet be unseen on the surface. When you connect this indicator adjusted to 30 periods
to purchase options on equities, it will develop into a sound trading strategy.

In the CCI chart example above, we noted the fins with the default setting of 30
to identify the overbought and oversold areas. Now let’s look pinpoint the areas where
the indicator dropped below the 200 line (like we’d be looking at prior to buying an
option.) As you look, let me ask a few questions to begin your analysis thought process.

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  When the CCI line dropped below 200, did the candlesticks drop at that same
time?
 Did the CCI line drop below 200, and then rise again, only to drop a short time
later?
 If it did drop and rise, and drop again, was the second fin smaller, so that it
created divergence or a lower high?
 Does the CCI stay in the overbought area for long periods of time or does it spike
and then immediately drop?
 Is there a pattern that is common for this time-frame? Does it create the same
shape fins, or does it seem to create a pattern based on time? (Ex: every 2-3
days it swings from overbought to oversold.)
 Also, we might as well start thinking about how long the average trade takes.
How many days did the stock drop during each pullback? Is there a close
average? Meaning, between 1-2 days each time it pulls back or is it a week or
two.

(I am applying this pattern to a 60 minute chart. If you trade using a daily

time frame or perhaps, another intraday time frame like a 15 minute chart in your
strategy, the CCI Fin indicator can be applied to those time frame charts as well.
Once you have read through the manual, I suggest testing your favorite time
frame by paper or virtual trading it to gauge the amount of time between
overbought and oversold swings.)

The questions above relate to FFIV being overbought and the possibility of
entering a put and trade. The same questions can be asked in reverse when you
consider entering a call position as the CCI rises above -200.

Let’s look at a couple more charts while keeping those questions in mind. If you
analyze each drop below 200, you will begin to fine tune your CCI chart reading skills.

Lululemon's (LULU) chart is next.

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 Chart Courtesy of Stockcharts.com Fig. 2

Before we start looking at specific trade entries and exits, take an extra minute to notice
how the CCI 30 setting refines the created fins on the chart.

Are you doing okay? Hanging in there?

All right!

Let's look at a entry and exit signals on a specific trade.

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Chart courtesy of Stockcharts.com Fig. 3

On September 19th when the CCI dropped below 100, you entered a put trade. You
will now hold the trade until it becomes extremely oversold and drops as low as -200.
You will exit after it reaches -200/200+ and when it rises again above -100.

The premium on the put you purchased on the 19th for the Oct 13 37 strike put was .35
per share. The option you purchase was one strike out-of-the-money.

At an ask premium of .35, each contract would be $35 for the 100 shares covered by
the option contract, so let's say you purchased 10 contracts for a total investment of
$350.

Most traders with small portfolios can manage an investment of $350 for 10 contracts.

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Chart courtesy of Stockcharts.com Fig. 4

From here, we will tie all the pieces together.

When the CCI dropped below -200, you waited for it to then move above -100 for your
exit signal. On September 23rd, when the CCI moved above -100, the bid premium was
$.65 per share. You paid .35 so this was a gain of .30 per share or $.30 per contract or
$300 for your 10 contracts. This was a gain of 86% over the 3 days.

Nice trade!

Let's look at a couple more trade examples using Mini-options.

Mini-options became available a number of months ago on 5 more expensive equities.

AAPL, GOOG, AMZN, GLD, and SPY.

The main difference is that instead of being comprised of 100 shares per contract, mini-
options cover 10 shares of the underlying equity. The bid and ask premium is the same
for standard and mini-options, but the number of shares is less. This difference brings
the expensive equities in line, so that the everyday trader can purchase option contracts
on high-end equities offering mini-options.

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Chart Courtesy of Stockcharts.com Fig. 5

On March 26th, you purchased March 13 450 strike calls. The premium was 11.60 for
the 450 strike that was one strike out-of-the-money. This is 116.00 per contract for the
10 shares covered by the mini-options. We'll say you purchased 5 contracts for this
GOOG trade, which is a total investment of $580.

Let's see how this trade worked out.

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Courtesy of Stockcharts.com Fig. 6

On March 6th, the CCI reached 200 and then dropped below 100 and you exited the
trade. The premium at the time that you closed the trade was 38.90.

That is a gain of 28.30 points per share or 267% or $1,415 for the 5 contracts.

Geez, that is another nice trade that lasted only 6 days.

Shall we look at another equity?

Next, we will discuss AMZN. It is another of the more expensive equities that offers
mini-options.

I have marked possible earlier entries and exits, as well as the trade that we will
analyze.

On February 26th, you purchase March 13 260 strike calls when the CCI rises above -
100. The ask premium was 6.30 per share or 63.00 for the 10 Mini-Option shares. For
this trade you purchased 10 contracts for a total of $630.

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On the chart, CCI drew back after it crossed and closed just below -100 as the price
close a little lower. You'll watch to exit if the price turns and goes below 258, using this
as your stop.

Chart courtesy of Stockcharts.com Fig. 7

Fortunately, the price continued traveling upward rather than pull back further.

It doesn't happen often, but there are times within the course of a move up and down,
the CCI will cross and then draw back. If you want to be 100% certain that the price has
crossed and will stay on the other side of the 100 line, you could wait for a candle close
and enter on the next candle. This is give up a small portion of the gain but it decreases
the risk.

The next chart will show how the trade played out.

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Chart courtesy of Stockcharts.com Fig. 8

On March 6th when the CCI reached 200 and then dropped below 100, you exited the
trade. The bid premium at the time you closed the trade was 14.55. You paid 6.30, so
this is a profit of 8.25 per share or 82.50 per contract or 131%. You purchased 10
contracts. WTG (Way-to-go), this was a total gain of $825!

These gains are quite impressive for such a simple strategy.

Let's see if the trades hold true for the other two Mini-Option equities.

We'll look at GLD next.

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Chart courtesy of Stockcharts.com Fig. 9

On GLD's chart above, there is a call entry marked for February 19th and a put on
February 26th. After the purchase of your contracts, the price challenged the oversold
area and tried to drop below -200 four or five times and couldn't reach that extremely
low, oversold level. Rather than give up any of your profit, you close the trade.

In a case such as this, when an equity struggles and fails after several attempts, it is
wiser to take profit and wait to see how the equity settles out. Because of the bearish
weakness, you hold off on purchasing calls, waiting for a stronger oversold signal.

There will be other trades in GLD. Move on to another equity.

In hindsight, you can see that a call trade would have worked out to be a 1 point move
in equity price which may hardly have paid for the fees. It was a good move on your
part to stand aside.

Next is SPY, and then we will have discussed all 5 of the Mini-Option equities that are
available at this point in time.

Let's look at SPY's chart and check out how its price moves.

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Chart courtesy of Stockcharts.com Fig. 10

On SPY's chart there was a nice profitable call trade toward the end of February. When
you entered the reverse put trade as the CCI dropped below 100 on March 6th, SPY's
price did a u-turn and continued up. Eventually, it dropped to become extremely
oversold on the 19th of March, but because of the previous bullish effort, the price when
it reach oversold was quite near the price point when you entered the trade.

The trade resulted in a small loss in premium plus trading fees. A few losing trades is
part of the trading equation even when you follow the most profitable strategy. The idea
is to keep losing trades small and have winning trades outpace the losers.

The writing of this strategy manual has spanned over the launch of mini-option on
March 18, 2013 on into the Summer of 2013. As added evidence of the effectiveness of
mini-options as a trade vehicle and to further illustrate The CCI Fin Strategy, let me post
a couple more trades.

I am excite about mini-options and the opportunity they offer to the everyday trader.

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Chart Courtesy of Stockcharts.com Fig. 11

On April 8th when APPL's CCI moved above -100, you purchased April 2 12 425 strike
calls at a premium of $5.85 per share for a total of $58.50, and you purchase 10
contracts for $585.

The chart below shows what took place.

The price rose quickly and on the 11th of April, the CCI dropped below 100 and you
exited the trade. The premium at that point was $10.60 per share or $106. per contract
or $1060 for your 10 contracts.

This resulted in a profit of $4.75 per share or $47.50 or $475 for the 10 contracts or
81%.

Not bad for a 4 day trade!

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Chart Courtesy of Stockcharts.com Fig. 12

Let's look at a couple more to cement the strategy details in place.

AMZN's chart below is marked with a couple previous trades as well as the current
trade entry on the 5th of April.

The premium on entry was $1.51 for the weekly April 2 13 260 calls. The total per
contract is $15.10 and you decide to purchase 20 contracts for a total of $320.

I am going to stress here, especially as it relates to inexpensive options, don't get

carried away and buy too many contracts think you are going to get rich in one trade.
Brokerage fees vary, but you can end up paying a great deal to get in and out of a trade
if you purchase too many contracts. I seldom buy over 20. On a rare occasion 30
contracts. Never more. That is the top of my risk tolerance.

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Chart Courtesy of Stockcharts.com Fig. 13

The expiration day for the April 2 13 260 call options is Friday April 12th. The price has
continued to climb and you close the trade on expiration day.

The day of the 12th started out with swings in price. The second candle was negative
and as it neared the 100 you started filling in the sell order. Before you could push the
button the price rose a little. You waited a few minutes longer to see what was going to
happen next, after all, it is expiration day and you know you are going to sell, but why
not time your exit. The 3rd candle is positive and it climbs until the end of the day.

It is at 15 minutes to 4:00 o'clock that you close the trade.

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Chart Courtesy of Stockcharts.com Fig. 14

The premium when you close the trade is $12.75 per share or $127.50 per contract.
Now you paid $1.51 per share so that is a profit of $11.24 per share or $112.40 per
contract and you purchase 20 contracts or $2,248 or 744%.

That is a GREAT trade!

One more mini-option example and then I will post another standard option trade to
wrap up our chart examples.

SPY's chart below shows that the CCI crossed above the -100 2 hours before the close
and you open a position purchasing next week's weekly option.

You purchase April 2 13 155.50 strike calls for $.81 or $8.10. They are so reasonable
priced that you purchase 20 contracts. You decide not to purchase more than this
because of the additional commission fees. Your total investment is $162.

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Chart Courtesy of Stockcharts.com Fig. 15

SPY's price continue to climb until it becomes overbought on April 11th. When it drops
below CCI 100, you close the trade.

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Chart Courtesy of Stockcharts.com Fig. 16

April 11th the CCI dropped below 100 and you close the trade at the end of the trading
day. The bid premium is $3.50 per share or $35. per contract and you owned 20
contracts or a total of $700.

You paid .81 on entry so you realized a profit of $2.69 or $26.90 per contract or $538.
for your 20 contracts. This was a gain of 332%.

Wow. Another great trade.

We have looked at all 5 of the mini-option equities and each has produced winning
trades. This CCI Fin strategy is the easiest, most straight forward trade strategy that I
have ever developed.

I spent some extra time to look at the stocks offering mini-options because they are
often equities that the everyday trade can't afford to trade and mini-options gives us a
chance to trade them, too.

So let's look at one more equity offering standard option contracts and then we'll wrap
up the strategy.

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Courtesy of Stockcharts.com Fig. 17

Johnson & Johnson's price was caught in a general market pullback. You did not
consider an entry while the market was correcting, but you spotted an area of bullish
divergence. (Divergence means disagreement.) In this case, the JNJ's price is dropping
but the CCI is creating lower lows.

Notice how the fins have gone from -300+ to -200+ to perhaps -150. The fins are
getting smaller and you decide on the next cross above -100, you will enter a trade
buying extra time just in case the price drop isn't finished.

On the morning of the 23rd, you purchase the Oct 13 90 strike contracts for .96 per
share or $96 per contract. You decide to buy 6 contracts for a total investment of $576.

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Chart courtesy of Stockcharts.com Fig. 18

After entry, the price dropped again and created another -200 fin. You purchased extra
time, knowing this drop was a possibility; therefore, you held through the drop since you
had time on your side.

For almost two weeks, price traded in a tight $1 range, but the CCI showed that price
was trying to build enough strength to move to the other side and become overbought.

September 10th the CCI crossed over the 200 line, and then on the 12th when it
crossed below 100, it signaled it was time to exit the trade.

On September 12th when the CCI dropped below 100, the bid premium on your options
was 1.35 per share or $135 per contract or $810 for the 6 contracts. That is a profit of
$234 or 41%.

There are times that the swings from CCI oversold to overbought can generate a double
in premium or more, but they can also give solid two digit percentage gains over a short
period of time.

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As seen in this trade it is important to be aware of what is happening in the market as a
whole. In this trade, CCI bullish divergence gave a clue that something was brewing
behind the scenes.

As seen in the charts that we have looked at, I find that this strategy works best on the
60 minute chart. The CCI (30) can be applied to other time frames, longer and shorter
term, but if you try another time frame chart, I suggest that you paper trade or virtual
trade to test the moves that happen within that time frame.

You not only want to test the accuracy of the CCI Fins in that time frame, but also to
evaluate the price moves that take place. It could be that the moves that happen on a
15 minute charts are not enough to be viable trades that will cover the fees of the trade
and still give you a profit. Or on a 10 minute chart, there are too many false signals.

Before moving beyond the 60 minute charts, be sure you have trading proof to support
the new time frame change.

I have written a number of long and short strategy books, in addition to the CCI Fin
strategy detailed above. One strategy book in particular that utilizes the CCI Fin pattern
is the QQQ MERIT Advisory program.

The CCI Fin pattern is just one of 8 patterns applied to the QQQs. Not only are all the
patterns simple and easy to read, but instead of fighting to find the right equity to invest
in, the MERIT program narrows the choice down to one equity, the QQQs.

Further information on the QQQ MERIT program and other strategy books and their
candidate newsletters can be obtained by calling 1/888/233-1431.

On the other hand, if you are using another teaching-trader’s strategy, you will most
likely be able to adapt the CCI Fins to fit that strategy.

The trading opportunity that this new, easy to read pattern provides is a superb gift to
small retail traders, especially when it comes to being able to trade mini-options on the
more expensive stocks.

I wish you trading success and financial independence!

Wendy Kirkland

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