The Chat Room with the Magic Indicator

About two years ago I entered a trading slump. I didn’t know what to do to break out of it. When I don’t know what to do I surf the internet. I knew the answer must be out there somewhere. I needed a fresh trading idea. I began hunting around and came upon a chat room that dealt with only one indicator. I was intrigued. Here was a room with several hundred people all focusing their attention on two or three markets, and taking the trading signals generated by this one indicator. And it was free. How good could a free chat room be? Why would anyone put all that effort and work into something for free? It didn’t make any sense. I was even more intrigued.

I clicked a link on the web site and within a few minutes I was listening to the moderator’s voice, saw his charts on the screen, and could read text of comments by the other traders in the room. I had never been in a chat room before.

I heard the voice of a very calm, relaxed man that had just taken 50 or more ticks out of the YM (Dow mini contract). Dozens of traders posted their comments into the room. The posts were of the nature of congratulations for the winning trade, but more so as of congratulating the moderator for such a wonderful, magic indicator, and all the wonderful trading patterns on this magic indicator that were given to all. I observed for an hour or so. I noticed that there were no prices on any of the three charts that were posted. He kept repeating, like a mantra, that you didn’t need prices, the CCI was all you needed.

The magic indicator being used was the old CCI, or Commodity Channel Index developed by Donald Lambert and introduced to the trading community around 1980. I was quite familiar with it, as I had tried using it several times in the past. In fact, I heard the inventor speak at a trading conference shortly after the indicator was introduced into early charting software. But it looked different. It filled the screen, as there were no price bars on the chart. And it had lots of colors that I wasn’t used to seeing. There were histogram bars that changed color with the trend. Very innovative. There were many color changes on the horizontal reference lines as well. Also, instead of displaying just the plus and minus hundred lines along with the actual CCI line, which was the main point to the formula, there were also the 200 lines, and curiously the zero line. Lambert didn’t feel the need to display the zero line, as it was just a simple detrended moving average. But there it was on the chart with red and green dots. The moderator kept referring to the zero line as support. I guess it is, in a way, since a moving average with the proper length can act as support. But I also noticed the parameter was set to 14, which is way to short a cycle to filter out the noise. I always understood that the CCI lookback period should be set to use one full cycle, despite some misleading information on some web sites that I explain in more detail in “CCI – Making it Better,” located in the Indicators section of this blog. So why was a very short 14-bar parameter being used? Nobody in the room questioned the use of such a short parameter. It did give a lot more movement in the CCI line to create the patterns, but I felt they were mostly based on noise, therefore a successful pattern was likely just a random occurrence. But what did I know only being in the room for an hour.

I then posted my opinion about the zero line and the short parameter. No answer on the short parameter, but to the zero line question I got this: “the zero line is not a moving average, it is where the support comes into the market NOW.” He emphasized the word “now” with a touch of irritation in his otherwise calm voice. But what was more interesting, there was a barrage of nasty, venomous comments to me from other traders in the room, chastising me for posting such a dumb comment. After all, this indicator is indeed a magic indicator. Logic doesn’t have to apply. How could I question and degrade it by saying the zero line, which seemed like the most important component, at least in the signals that were being called by the moderator up to that point, was nothing more than a simple moving average. Never mind the fact that a simple moving is in the second line of the CCI formula. I felt like I was the only person in the room that knew this fact.

After listening, quietly this time, for another hour, the moderator made the claim that he invented the use of applying patterns to an indicator. Not only did he make such a claim, but dozens of people typed in praise and thanks. Maybe he just meant he invented using patterns on this particular indicator. He did rename all the patterns, but I recognized a head and shoulders pattern on the indicator, which Martin Pring had written about on the RSI many years before this chat room existed. That bounce off the zero line was a rehash of Raschke’s bounce off the 20 ema and a similar trigger pattern using the 310 oscillator. The failure of the bounce off the zero line, as well as a divergence pattern that had a different name, were all described many years earlier by George Lane and others. I could go on with many more references to patterns on indicators that are well documented in the technical trading literature of many years ago. There was really nothing new here. On the positive side it seemed he did an excellent job of categorizing many different patterns and putting them all together into a package that would be more readily accessible to new traders. So that was good. And there were many good concepts offered on trading in general and money management. And there was wisdom from an experienced person. He would say it would take a person ten years to become a doctor, or some other profession, so why does a trader think he can make a million dollars with two weeks training. That was excellent advice. The chat room was upbeat and positive, as long as I didn’t post any dumb questions of course. I thought I should continue on.

I then thought I had better read the manual, which was in a PDF file on the web site. I learned from the trading manual that the color changes on the horizontal lines were some confirming indicators that had nothing to do with the CCI. One was a red light, green light idea based on a moving average. On the zero line was a red light, green light based on what they called a least squared moving average, which is actually a regression curve. There is no moving average in the formula. But I kept my mouth shut this time, or I should say my fingers. I did start to notice that nobody in the room questioned anything. I asked a few technical questions but most were ignored. When I persisted I sometimes got a private message from somebody that apparently was monitoring the text chat. When I argued with or questioned anything that the moderator said I would get a message telling me to knock it off. This set off some alarms. It partly answered the question why nobody was questioning anything.

Then I noticed that they kept putting up 133 tick charts on certain markets. Most of the time the charts were 3 or 5 minute. I simply asked why they chose that particular number, just out of curiosity. The main moderator said it was a fibonacci number. I knew that wasn’t so. The closest fibonacci number was 144. Not that it makes any difference. I made the mistake of being nit picky again and posted that 133 was not a fibonacci number. I got another private message saying that the next time I questioned the master that I’d be permanently booted from the room. I was never to question anything the master said, and that what he said was correct. In addition to that, a dozen or more posts from other traders said that I was wrong. A couple people came to my defense and said that I was correct. I hope they didn’t get booted. The moderator stuck by his belief that 133 was a fib number.

I know these points are not really important. If the trading methodology is sound I can forgive someone thinking that 133 is a fib number or that a 14 period simple moving average is to be regarded as major support now, or at some other time. But there was one thing being said over and over in the room by most of the moderators and essentially all the participants that bothered me. That is that the CCI is a leading indicator. And it seemed to be universally accepted as the truth. He would show examples where it looks like the CCI gives a trend line break ahead of price breaking a trendline. (He would only temporarily display prices just to illustrate his point.) Now, back to reality for a minute, it is mathematically impossible for a derivative set of calculations to lead the function from which they are derived. Anything said to the contrary is trying to redefine the rules of math. I’m sure what he was trying to say, and illustrate, was that momentum can (at times) lead price. It can in a non-trending market. A pure momentum indicator, such as rate of change, would show this in exactly the same way. Momentum will appear to lead price if the market behaves like a perfect sine wave and you use the correct input into the indicator, which reflects that cycle. Given these conditions a momentum indicator will appear to anticipate the turning points. So at times, somewhat randomly I might add, an indicator will get synched up with the cycle in price and appear to lead. But it is not leading. Nothing leads price. Price is the leader. Every calculation derived from price will lag and follow. Momentum only seems to lead in a cyclical environment where the cycle is in synch with the parameter of the indicator.

And what about trading the CCI with no prices on the chart? To me this seemed like telling someone who’s driving down the freeway at 70 mph to cover up the windshield. Like a voice booming down from the heavens saying you don’t need to see the road, all you need is the GPS. It’s a leading indicator. It is leading where you’re car is trying to go. Why not simply look out the window and drive like a normal person. Why take the very thing you are trading off the screen so you can only see an indicator that is derived from it. The only explanation the moderator offered as to why you don’t need prices is that they’ll scare you out of positions. That might be true, but if you are afraid to drive, covering up the windshield won’t help you conquer your fear. On the other side of the coin, and perhaps a better explanation but one that was never discussed in the room, is that looking at the CCI is actually looking at price. The actual CCI line is nothing more than price as represented by the average of the high, the low, and the close of the current bar. It is then detrended around the same simple moving average as used in the input parameter. Then the resulting price is skewed so that approximately 80% of the price points reside within the plus and minus hundred lines. (There is more explanation on this in the CCI articles in the Indicators section of this blog.) But back to the first side of the coin, by doing this you miss seeing the structure of the market. You can’t get a sense of the size of an impulse move, or the character of a consolidation, or the swing points that are being tested and re-tested, and the resulting success or failures of these tests. You don’t see the market generated information in the pure sense. The CCI is just an indicator. It indicates. Price is the important thing on the chart. A good trader can trade without indicators and only watch price. Everyday in the room the mantra of not needing prices was chanted many times. Every time I would cringe. Each time there would be a flurry of posts thanking the moderator for making them take their prices off the screen. They would claim that their trading had become so much better without looking at prices. I did not dare post my protest.

I had a hard time believing that nearly a thousand people would accept everything that was being said. Accepting it so readily. Were they all drinking Kool-Aid? It was an interesting study on the need to believe in a leader, or a guru. On the need to believe that someone has the answer and to turn over one’s own sense of logic to a stranger just based on what is being said. On the need to keep a dream alive in the face of hard facts.

But I persevered. I felt a calm by narrowing my study to one indicator. And his trading results certainly looked more encouraging than mine. I would get the recaps after market close on days that they were available. Nearly every trade in the recap was profitable. On the rare trade that didn’t work out the loss was usually only a tick or two. I can forgive someone not knowing what a fib number is if I can learn this kind of trading performance. I sometimes didn’t pay close attention during trading hours, so at first I didn’t question the recaps. I was trying to trade my own way and just kept a small bit of my attention on the chat room when these signals were being called in real time. But then I started to pay close attention, as the results in the recap were far better than my results. I tried to write down the trades as they were being called, and then tried to reconcile them in the recap after the market closed. I found that most of the time the trades were hinted at in real time, or if called directly, there would be a hedging comment that could later be referred to if the trade went the other way, so either way the trade was profitable. To be fair, this room was meant to educate traders, not to call out trades. It was OK to discuss a pattern setting up and saying aggressive traders might take this or that trade, or reasons for not taking it. Not every set-up was right for every trader. Some traders might wait for a better signal. If a trade went the wrong way you would be given the option of getting out, or parameters for managing the trade if left on. This was all fine. The point of the live chat was to discuss the patterns and to educate, so discussing the pros and cons of each setup was good. But I began to notice in the recap that the winning trades were selected very carefully out of the real time comments. Nearly every trade called could later be called a winner if you hedged every comment. Again, nobody questioned any of this. There was only a short time from the live commentary to the recap. Was I the only one who noticed the discrepancies?

At this point I decided to do my own testing. I had been in the room long enough to know every pattern, every nuance used by every moderator. I had been to two live events with lectures and real time trading. I was good at TradeStation programming and had the data to test. I programmed everything. Every nuance. Every rule explained in the manual, and every nuances talked about in the room and the live events. I took each pattern individually so I could find which patterns had profitable or encouraging tendencies. I programmed each indicator to use exit rules based on the CCI rules as described in the manual, as well as to just test all different tick amounts for stops and profit targets. Some of the patterns were being verbally touted in the room as having a 90% probability of a successful outcome, and being able to use a two to one or better profit to loss profit factor. I knew this was nearly impossible but those stats were reiterated by many whom were the most respected traders in the room. I had to know for sure if there was anything to the claims.

For my tests I decided I needed thousands of samples over many types of market conditions. I restricted my testing to three of the markets the main moderator focused on. I tested on the two time frames that were mostly used at that time, which were 3 minute and 5 minute bars. I decided to test each of the patterns on five years of data, and broke them up into one year segments. I was just looking for profitable tendencies and robustness. I used bar close for entry. No commissions or slippage were taken out, so I assume perfect fills with no trading costs. I know this is unrealistic, but I was just looking for tendencies. The trading manual said there were three different entries: enter on close, enter last 20 seconds of bar, or enter as pattern appears even if in beginning of bar. The most reliable for programming accuracy was to just test on bar close. I couldn’t program TradeStation to assume a fill 20 seconds before a 5 minute bar painted. I figured if there was a positive tendency using bar close, then in real time I could probably improve my results by entering early, but the test should still show a positive tendency using bar close.

After programming everything into TradeStation I tested the signals by hand, covering several hundred signals on each pattern, just to make sure my programming caught all the signals based on the rules, and didn’t create signals that shouldn’t have been there. I was able to get TradeStation to recognize the CCI patterns with almost perfect accuracy. Even if there were an occasional glitch, I figured with such a large sample size that the results would be accurate enough to know if there were any profitable tendencies using any of these patterns. An early stumbling block was the red, yellow, green light indicator that allowed or disallowed the signal with the bounce off the zero line. That was proprietary. The indicator was available, but not the code so I was unable to put the code into my strategies. I figured out the formula by trial and error, so now had all the tools to test.

After spending weeks and reams of paper for my printouts, I found that none of the patterns resulted in a profit in any of the previous five years when tested mechanically. The high percentage trade I referred to earlier actually lost money, and had closer to 30% winning trades, about a third of what was being verbally touted. I’m sure the true believers would doubt my programming. Maybe there were some rules I missed. If so they weren’t posted on the web site or talked about in the chat room. The bounces off the zero line fared slightly better, but still far less than 50%, some years closer to 30%. Results less reliable than the flip of a coin. The two divergence patterns were the lowest percentage of winners. Some of these patterns I could get to show around 60% winners if I removed the stop loss, and then set the profit objective very close, something like 3 or 5 ticks. But of course that lost a lot of money, and that was without calculating commission and slippage costs.

To summarize my testing: nothing worked. Nothing came close to a favorable tendency.

I tried to tell other people in the room about my research and the dismal results. Most of them wouldn’t hear it. They didn’t want to hear the truth. They were too invested in the method, and they had to believe they would eventually become successful if only they would hang on a bit longer, attend one more live event, just learn that secret that’s just around the corner.

I did notice some defection in the room, as there was another trader who seemed to have a better approach. He was gaining a following, which was no surprise if my dismal testing results were indicative of other traders account balances. I then programmed his new system into TradeStation and tested it. It was based on some sound theories, namely extending the CCI parameter on one of the components to something more realistic than 14, although he did keep the 14 parameter in part of the equation. But my mechanical testing still did not result in a positive return. It was better, but still a loser, at least trading it mechanically. Maybe he was successful using it as a guide to his discretionary trading, but programmed as presented it was a loser, despite the hype. He was eventually booted from the room. Although the results of the testing did not result in anything useable, it encouraged me to do further research, which lead me to using a much longer CCI parameter, and eventually an adaptive parameter, and to adjust my rules based on the different character of using such a parameter. (I have more on this topic in the Indicators section of this blog.)

Testing any system mechanically will most likely result in a negative outcome. I do not believe that a system has ever existed, or that ever will exist, that you can program into a computer that will trade a market profitably over the long run. There might be some arbitrage system that can work, but as far as calling market direction with a net position, I just don’t think there is such a system. So, I didn’t expect to find a system I could trade mechanically and automatically. If such an approach were possible someone would have it, they would be at the golf course all day, and they would come home and count their profits. Eventually they would probably own the world. But if a system has a chance of being a reasonable guide to a discretionary trader, which is what I think is the best someone can hope for, it should at least show results better than a coin flip.

You might assume my time spend in this room a dead end or waste of time. That maybe I thought that this guru did have the answer to trading success. I knew better than to expect this. The sad part is that so many other people don’t know better. They are told something that they want desperately to believe, and they believe it. They don’t test it. They don’t question it. They believe blindly. They invest much time and money, and then they get past the point where they simply want to believe. Now they are too invested and they have to believe. They will disregard all common sense and all facts and proof in an effort to keep the dream alive.

Trading is hard work, and every trader has to find what fits his or her own personality and temperament. Nobody is going to easily give it away, whether in a free chat room, or a paid room or seminar, or a so-called trading school. There’s a whole industry out there that supply traders with tools and education. Much of it is good. Most of it is a waste, taught and promoted by people who are not successful using the approach themselves. Ultimately, one has to do one’s own work. And everything should be questioned. Everything should be tested. Every indicator formula should be understood. There are only so many ways one can apply math to the few prices represented on each bar of a chart. There is no magic indicator.

My experience through all of this did result in some good. I don’t regret a minute of the time I spent in this chat room. I met many people locally at meetings. I felt a sense of belonging to a community of traders in an otherwise solitary pursuit. Being in the room and questioning everything helped encourage research. I focused on one indicator longer than I ever had in the past, which resulted in developing trading rules on patterns that I would have probably overlooked. And the patterns in the chat room, even though weren’t original or profitable as presented, did become more useable to me once I changed the indicator and adapted them to my trading style. I think most of the patterns were based on sound theories. Certain nuances start to pop out when you see that same thing appear over and over. You miss these if you try to view too many indicators. Before being in the room I viewed too many indicators and spent much more time frozen in indecision. So I did learn some things by being in the chat room. I have tried other chat rooms briefly and in comparison I think this room is probably one of the better rooms to be in, as long as you think for yourself, do your own testing, and you are not looking for a guru to follow. I also learned about psychology and the mind of the traders that I compete with every day.

49 thoughts on “The Chat Room with the Magic Indicator

  1. Excellent. I was in this CCI chatroom for several months. I only saw boasting and claims of winning trades, mostly posted late. I’m glad it is being exposed here and some other blogs. From my experience I have to agree with what’s said above.

  2. I have had the same experiences with over 8 years Trade Station programming and trading system design. My experiences in trading system design have given me invaluable lessons. I use mechanical systems extensively, however, I use them because I know how and why they work. One such systems uses the CCI but no ZLR trades here – I get an average of 100 points a trade and trade rarely -to me a ZLR of 4 points -that’s just noise and a waste of time. I can be contatce at adamcox@ozemail.com.au if any one wants to laise with me.

  3. I had a similar experience. The “Vegas Trade” was supposedly the newest of the patterns. It had been revealed at a recent conference for a fee. Woody was talking about it all morning and I asked for more information. After telling me that it was only fair that those who “paid” should be given a pw to an explination for the trade. I asked why could there not be a room then for those who could discuss the trade as most in the room did not understand the topic. “Woodies CCI” room is “free” after all. A torrent of abuse was let out against me. I was booted from the room numerous times.

  4. Interesting how easy it is to points fingers at someone else. Woodie provides a chat room for free, promises nothing, tells everyone to absolutely do your own stats, don’t trade ANY realy money without a trading plan, provides free support, hides nothing including his willingness to admit failed trade and yet people are complaining that what he does is poor trading strategy. He teaches money management for free, you link up with some of the kindesst people in the world, and provides a forum for all your questions and people still complain.
    I paid big $$$ to others who are highly regarded, I paid Big $$$ to others to be in a chat room charging big monthly with zero results, I know a person who paid money to a trading guru who charges $10,000.00 to mentor you for 3 days and still isn’t profitable.
    If you get something for nothing you can’t complain. It’s better than getting nothing for something which is what most people get from most trading outfits. I have a friend who paid $$$ for an automated system that loses money every day.
    Stick in the room for at least 6 weeks and listen, then decide for yourself. Trading isn’t easy however at least Woodie will point you in the right direction. The rest is up to you.
    GC

  5. GC3, thanks for the comment. You make some good points. The money management is excellent. The people in the room are great and supportive. There was much useful trading wisdom offered. The chat room is free, but there is relentless promotion of products and other sources of revenue, which is fine. He should be compensated. I’m not sure how much willingness there is to admit failed trades if you follow along closely. I was in the room for far more than six weeks. I was in the room for nearly three years. But as I said in my article, I don’t regret a minute of it. I learned a great deal. I met many great people who are now friends. I did try to point out some of the positives, but I think it fair to also point out some things traders should be aware of. Even with the negatives that I pointed out, I do think the room is a good place to learn, and a far better place then many of the expensive paid rooms. My tone in the article was probably a little too harsh. I was trying to make the point that traders shouldn’t be looking for a guru, and have to do their own thinking.
    I do appreciate your comments.
    Doug

  6. I’ve followed this website since its paypal days. I’ve noticed that many of the moderators admit that they are not profitable. However I respected Mr. Wood’s philosophy and motto of “traders helping traders” I observed with some passive interest the commercialization of woodiescciclub. His motto now should change to TRADERS HELPING TRADERS FOR A SMALL FEE” Make your own trading decisions don’t spend thousands of dollars on someone else’s system.
    Alex

  7. Terrific article. Thank you. I just visited that site after two years and saw that there is now a $900, multi-CD course. Plus a ton of commercial links. KACHING!!! I’ve always been suspicious of the “traders helping traders” mantra. It may have been that way AT FIRST. (I was a member back in 2002 when things were just starting to pick up and we added a second room, so I actually got in LATE.) I think BEFORE ME that philosophy was truly at work. But then the place became something else. Yes, drinking Kool Aid is an excellent comparison. Jim Jones was all about Christians helping Christians.

  8. Dear Doug,

    very interesting article, indeed. I follow woodies webside for almost a year (in November 2007 Woodie changed to range bars from 5 minute charts). I appreciate your effort to analyse what is being presented there (I did not do that to such an extent).

    As many others, I have some reservations to what has been said there. Nevertheless, Woodie always put an emphasis to say to new traders to make their own stats, develop and write a trading plan, and follow a strict money managment. I think this is the most important message from him, no matter if I decide to use his system or not (I trade cci in a modified form). Trading is a hard business and one has to know what he is doing (that is why most of traders fail). Best regards, Squashfan

  9. The truth is that %90 of people will lose money even when given a winning strategy to trade. The CCI system is a trend following indicator period. Take the trade set your stop and 1st target then walk away, then when you hit first target move stop to entry plus one and wait for CCI exit or stop out. It is vey boring and %90 of people cant stand to sit and wait for a signal so they take impulse trades and lose big because they dont set stops. Figure that out of one hundred trades you break even on costs on 90 trades and make your profit on the 10 runners that you hit. Thats only if you have enough confidence in your sytem to have several loseing days in a row at times. If you can say that you had a good week of trading
    even when you lost on 3 of 5 days and ended down %5 but followed your plan to the tee you might be ready to survive this journey.

    Backtesting is worthless, This is a quote from the article above. “Testing any system mechanically will most likely result in a negative outcome. I do not believe that a system has ever existed, or that ever will exist, that you can program into a computer that will trade a market profitably over the long run.”

  10. HIT or high incidence trading is common place along with other forms of ‘algo’ based systems. Goldman has a team of programmers, and I assume the same re: other big firms. One person is responsible for has much as 5-10% of Naz volume–a programmer and former trader from KC. There are numerous articles about movement toward quantitative systems. Pit traders are moving to the screen. Retail traders have got to be nimble. MA’s and oscillators usually only make clear what already exists in price movement. CCI is overhyped by Woody. He ostracized Dr. Bob and anyone who doesn’t agree with him. The only way to learn to trade is to find out on your own. You can learn a lot from others but no one is going to hold your hand–and that’s what I see all the time, not just with Woody but in rooms everywhere. I’d being willing to bet that Woodie’s record for producing traders is no better than the standard accepted failure rate of 90-95%. It’s harsh but that’s what it is.

  11. lost 80k trying to trade the cci, 2 years of struggle and finally pulled all the plugs out of my computer and shut it all down. I always thought it was my fault, which it is but… I guess I am a slow learner.
    still i did enjoy the people trying to make it in the room.

  12. I trade WCCI for about 2 years. I had the same experience as you have, but after 12-18 months I realized I can not take all the patterns mechanically (my results were the same as yours), I have to know the market, I have to have good MM and I have to trust to my system, but you can never take all te patterns you see. Im curious how did you program chop or how did you program days with small range that you wouldn’t normally trade, etc..
    There is no indicator that you can just put into your computer and it will do all the work for you. And CCI is the same as all other indicator.

  13. Bastian, regarding small range first, I haven’t found an indicator that can predict when a small range bar will occur. I have a paint bar study that tells me when a daily bar range is the narrowest of the past 7 days. If the range narrows I expect the range to expand, so a narrow range bar puts me on the lookout for a wide range bar. But I haven’t found the reverse to be very helpful. Sometime a wide range bar, or two wide range bars will tilt the odds of the following bar being a narrow range, but there are many narrow range bars that are not preceeded by wide range bars. I look at a market profile bell curve that will indicate if the current bar forming looks like it will end up being a narrow range bar. If there is much rotation between the 30 minute period, that is much overlapping, the value area is very small relative to previous days, and the range so far is tight compared to the previous several sessions, then I assume a narrow range will continue. But you always have to be on the lookout for range expansion, even late in the day. The Connors/Raschke historical volatility might be worth exploring. I’m sure there lots of stuff on it if you google it. Also, John Hill has what he calls a “can trade” indicator that was in one of his books that tracks a certain kind of range contraction to allow opening range breakout types of trades.
    Regarding chop, I haven’t found any indicators that help anticipate when chop will begin. Most indicator have considerable lag. I’ve found the standard error bands on intra-day tick charts to be very helpful. If the bands are wide, price action is usually choppy. As the bands narrow the price action smooths out and usually trends, until a turning point, when the bands widen out again. Some traders use bollinger bands or the bollinger squeeze, which work just the opposite. I think they have too much lag, but you might look at them. I also have an average true range indicator that looks back several bars an compute two times the atr. As the atr widens, chop usually is starting. This is best on tick or volume charts I think. I’ve found intra-day minute based charts to be less useful. I also use an adaptive cycle measure by John Ehlers. As markets start to trend the cycle lengthens, and as chop begins, the cycle tightens. But there is lag before the indicator can figure out what’s going on. Also, and indicator like stochastics or rsi can sometimes warns of chop when swings of the indicators get compressed in amplitude and reverse quickly. I’ve tried ADX and find way too much lag to be of any use. R-squared is a little better, but still lags. I think observation, screen time, and experience are better than relying on an indicator to give a red light or a green light.

  14. Dough, I don’t use any indicator to see if the range is not tradable or if the market is in the chop. You are right, screen time and experience will tell you when you are not suppose to trade. But you can never put this into the computer, therefore I don’t believe that any “black box” can ever be profitable on the long run.
    It took me 12-18 months, 10 hours every day to know market and Im still learning. Not CCI but experience gives you an advantage over 90% of the traders. Unfortunately most of the traders are not willing to put so much time into learning one simple thing (it could be CCI, RSI, Stochastic or anything else, they all work the same), and they expect to be profitable after couple of months, and if they are not , they blame indicator, market, but never themself. And yes after that they are trying to find “guru” that give them profitable system.
    In the trading I don’t trade if potential of the trade is not at least 2 times bigger then my SL. Therefore I need good range but I dont need any indicator to see it. And of course if you are in the chop the potential will never by good enought to trade.

  15. Hello Doug, thank you for sharing you experience with CCI. I think if you look at the stats from this past year in the ER you will see there are alot of losing days…there is no “sweeping the losers under the carpet” so to speak. Maybe things have changed from when you were around but I know there is none of that now. I agree that Woodie’s system is not for everyone but that it can provide a good base for a trader. I say base because using other things to improve on the cci method can improve one’s bottom line, regardless of the “basic room rules” Woodie insists on. As mentioned by someone above Woodie has gone to “range bars”, a change that has improved the win% significantly. Good trading to all!

  16. Doug, Well said…no matter what indicators a trader uses…keeping it simple and experience is the key to successful trading. I’ve been successful at trading using only a few indicators for the past 15 years. Although I find the CCI useful…I could never imagine trading without my price bars.

  17. Woodie (Ken Wood) has an agenda – and it doesn’t involve helping traders. He is a dispicable piece of *%)$#. I don’t want to expend the energy typing out why – as I would install 16 paragraphs. So you’ll excuse me for using this forum as a catharsis.

    Please stay away from that *&%##&….

    All the best..

  18. i agree w/ almost all you’ve written about that chatroom, except one major mistake: 133 IS a fib number, and 144 IS NOT. Fib numbers are those that cannot be devided by no other numbers but themselves only. 144 is divisible by 2. Thats some major mistake affecting your accountability, I’d correct that right away….
    Regards
    Alex

  19. Alex, I do appreciate the comment, but 133 is not a fib number. Dividing by 2 has nothing to do with the fib sequence. You simply add the current number to the previous number. Just do a google search and you’ll see that I’m correct. Here is the sequence:
    1+1=2
    1+2=3
    2+3=5
    3+5=8
    5+8=13
    8+13=21
    13+21=34
    21+34=55
    34+55=89
    55+89=144
    89+144=233
    etc.

  20. I agree that backtesting is worthless….you can not program nuances into the computer and the value of screen time experience. The CCI as Woodie trades it today with the 6 basic patterns is profitable when every rule is followed. The chop zone and sidewinder indicators play a significant role in taking or not taking a trade. Now with range bar charts, the CCI is ever more valuable. Also….you can not program a runner into the backtesting equation. Its the runner that many take off too early that is the essence of this system. I was an all in and all out trader, however, Woodie has convinced me on the importance of staying with the trade until the CCI crosses back over the 100 line before getting out. This nuance has made me more $$ to handle my stop outs. On the ER…I use a 15 range bar…not time charts…but ranges as Woodie shows in his new system. The patterns are the same…but the stop is 17 ticks which is just outside the previous range bar. The initial target is 10 ticks and then a move to BE+1 for a no loss, no stress trade. The runner or the 2nd contract stays on until a stop of +1 is hit or the CCI crosses back over the 100 line…be it the -100 on a short of the +100 on a long. I have gotten 50 -100+ extra ticks with the runner that is the nuance that makes up for the stop outs. Even if the trades are 50/50….the money management of the runner gives you the profitability edge. Try to program that into Tradestation…oh wait…TS doesn’t even have Range bars for their charts. Hmmm…guess you will have to just watch and learn then. Go to Woodiescciclub.com and register for the forum. A trader named Ian does the stats for the ER. We have winners and we have losers. Its not magic, however, using the runner technique is the road to profitability…along with having a set stop. The trades in the FREE chat room are also pointed out plenty of time before the trade to allow you to set a buy stop or sell stop to get in . Sponsors are promoted in the room to help defray costs. You cant run these programs for free. I myself have learned all of this for FREE. I havent been to a TAL or bot the DVD’s. No one twists your arm to do that. Just get the FREE pdf of the system…and go to the FREE chat room and make up your own mind. Its not a scam in my book….however…ask yourself this if you are losing with Woodies CCI…..Did you really follow all the rules? or did u try to get in early or late. Bar close trading is the way to go. I have seen trades come within 1 tick of executing and/or stopping out. So don’t be a hero and lose your cash….Follow the rules…and just “trade the damn patterns”…as Woodie would say.
    By the way…this article is skeptical….cause woodie never used a tick chart….he has been on 5 min charts only for last few years ….now he is on range charts.
    Good Trading!
    JJ

  21. Hi JJ,
    why do you sound so familiar? Oh my mystake Mr Too TALL W, Too Arogant for everybody having another point of view, Hiding Under BS Name, Not Having Guts ….shall I continue ??
    I just wonder how your wife tolerates such a piece of work ?

  22. JJ,
    Why, in the name of all that’s reasonable, would you not make all your positions runners? Do the math home-skillet. If you want to pay the expense of stop out on 2 contracts, then Collect the profits on 2 contracts. The “Runner” mentalilty can not be supported by factual numbers, it is simply a sugar teat for ill-disciplined traders. If you disagree, show me the figures. (I asked you first. lol)

  23. ed:

    Home-skillet….hmmm….thats a name I have never been called. The reason I don’t make both of my contracts runners………is because my psyche needs to feel that it is a being taken care when I put on a trade. If you take a payday early and put it in the bank, then I am content in having a winner with a no stress runner. If it comes back on me and stops me out, then I still feel good that I have taken a profit and look for another trade. However , if I have both as runners and it goes in my favor 10 ticks….then reverses and stops me out….I feel terrible as having let a winner turn into a loser. Not to mention I have a deficit to make up on the next trade. That pressure alone can make your future trades skewed as your trading in the hole so to speak. This method satifies the inner struggle between “fear and greed.” It is a balance that I feel comfortable with.
    JJ

  24. I agree with JJ. In order to make AIAO trades work you have to know where the peak of the trade will occur or at least know where to place your profit targets to take the most the market has to offer. Even then you never really know when the ride is over. What can be worse then having a trade go your way only to see it stop out. I believe that can really screw you up mentally. Although stat’s do show that AIAO strategy are more profitable i find that taking something off builds confidence in your trading system and puts many at ease. As a new trader to WCCI I find this post enlightening. To this day I have not been able to replicate the results produced in the chat room. I have wondered if I was the one to blame since I didnt take all the setups. But now I see that maybe “trading the damn patterns” will need some descression. I appreciate everyone who has commented on their experiences and results with the system. It has made me wonder about WCCI and to be cautious as I continue my adventure as a trader. Its better to hear both sides of the story and then decide for yourself.

  25. I first used W-CCi in Jan of 2005. I started off with a 5k account and in a matter of 3 months shrunk it to 1.5k. I heard he same junk. If youre aggressive, you’d of entered there, 20 sec before close, yak, yak, yak. I really don’t blame woodie. I can only look to myself. I knew nothing about taking stats and money management. Would knowing these things back in ’05 have made the trades profitable? Absolutely not. It would probably have stopped me from getting to 1.5k that fast, but the “system” still sucked as many former moderators have attested to the fact that they, with all their vast CCi knowledge and trade-a-longs under their belts, were not able to make a living with it. Now, there were those few that did make money, but they were trading it differently and still these were only rumors. There was no real proof. Being very disheartened, I gave up on trading. In Decempber of ’07 I decided to give trading another try.
    I came back to the only place I knew, woodie’s CCi temple. Being that the chat room was now free, it was even more of an incentive. Exciting things were happening. People were making money left and right, range bars, no more 20 sec entry crap. I learned about stat taking and money management. It seems the “system” has really improved. I thought I’d start live again with what was left. I started again about mid April. Dec, Jan, Feb, were good months for the CCi. Mar and April, not so much. I paper traded those months. I did well. I guess I started during a really crappy period because most of the trades were stop outs. With my 1.5k I only last 6 CCi days. I still have enough for one more trade before not being able to meet margins. An equity switcher program would have helped. BTW…PFG sucks as a broker. All the time I’d here talk of slippage. 5 ticks in some cases. I’m with Global Futures and I’m using the Turbo Trader 2 platform. Even when the prices were giratting like crazy because of the CCi’ers entering at the specific prices, I still never got a tick of slippage. I can’t really blame the CCI this time eaither. It’s clear I didn’t have enough for the draw down. But then again, how much would you let it go. I can only imagine how much the 2 contractors are losing. As for woodie, he’s defiantly a shady individual. Rumor has it that woodie doesn’t even trade futures which is what he’s always yakkin’ about. I asked a moderator if he traded for a living and woodie jumped down my throat about it not being any of my business. I just wanted to see if he practiced what he preached. He (woodie) also took down the stats because they were showing smaller and smaller profits month after month. They (official caht room stats) were only up 1.5k something by the end of March. They did have a good last day in march where they made around 1.5 k on 2 contracts which broguht the total to 3k something. He’s says that people were relying to much on them and that they were becoming lazy and not taking their own stats. I’m sure $600 in the red late Mar had nothing to do with it.

    LESSONs (especially for newbies): Trading is not easy. No one will give you an edge. Learn, learn, learn, keep learning, and then learn some more. Screen time, screen time, screen time, and screen time. There is no magic indicator. Take what you can from where you can and don’t pay a penny if you don’t need to.

    Would someone weigh in on the “new” W-CCi range bars? It looks more like a modified CCi now. But it’s still fixed like the 14 was on the time bars. These new settings seem to eliminate market noise though but they don’t do to well in tight ranges as we’ve been having.

  26. WOW… sounds just like the OPPOSITE of the CCI chat room…. “Where’s the Love??”
    Any way… I followed the CCI on & off for about 2 years! My big problem was that I had “baggage” from the previous 10 yrs of trading ideas! You just can’t turn that stuff off!!
    MAYBE, that’s why I was doing OK…. I complemented my previous methodology with the CCI stuff… oh ya, PLUS I USED THE DAMN PRICES!!
    But seriously… I’m pretty sure that I simply use my indicators as a “crutch” for watching the price action, that I’ve been watching on TS4 from ’96 til today on TS8!
    We (meaning our trading group) were always looking for the “NEXT BEST THING”…. Better applications…. faster computers… more monitors…. faster internet connections (although we started off with BMI satellite & a phone)… faster executions…. cheaper R/T fees…… yada, yada, yada!! For quite a while, it was always something else… other than OURSELVES!!

    SO, to sum it all up…. here’s what I’ve learned after all these years….
    1) have a plan
    2) stick to the plan
    3) apply good money management principles that WORK FOR YOU!
    4) commit to the process, screen time, learning, etc!
    5) be real… you aren’t going to make a living on a $5K investment!!
    6) find or create a trading group (12 heads are better than 1)
    7) most importantly… FIND A MENTOR!!

    I gotta also add, that the most successful trader that I’ve ever met… weren’t always the smartest guy in the room… point being, KISS! (keep it simple…)

    Good Luck to you all!!

  27. I used to hang in Woodies CCI room years ago, and like everyone else, never had any success trading strictly the CCI. I use it as an indicator, along with my Elliott Wave analysis, and candlesticks. I used to gag when Woodie would do a recap, knowing that if I said anything I would get banned. He made it up as he went along. Any clear CCI signals that were losers, he was out of way early, saying it was obvious to get out, yet the winners he would ride through these “obvious” sell points, saying there was no reason to sell. When I saw all the good moderators leaving or getting banned, and newbies moderating who didn’t know sh-t, and weren’t even trading profitably, I knew it was time to split. Profitable traders do not strictly follow those rules. I find CCI useful for early entry by anticipating a CCI signal when my other analysis are all in agreement. Like anything, sometimes it works, sometimes not.

  28. Just a couple of remarks. Doug thanks for this site. As for PFG – I started to fill out the pfg forms and did not finish because the more I read the tighter the rope felt as it was wrapping around me. I have filled out several broker applications and this one was like no other.

    I attended the TAL Nov 07, the rangebar one, thinking that I would meet someone to later converse with but, this must say a lot about me, that did not happen. I did observe PFG Niel though – for some reason he just “gives me the creeps”. Like a tv mob enforcer. Anyway probable wrong there as many wcci’ers have honey dripping from their mouth when they remark, “you will have to ask PFG Niel about that.”

    On the positive side – Things like planning, money management, keeping a record of trades, screen time paper trading are well worth spending some time in the free chat room. Available elsewhere – yes. Oh yes, Martin from FL and his options videos, which have now been pulled from wcci club, were very positive. Dr. Dorn was well worth listening to at the TAL.

  29. great website Doug, just wanted to say that I too have spent more than a year in the free chat room and while the education content is excellent it is rather muddied by the method. I also tracked the trades carefully and found no real expectancy of an adge from the patterns and nuances alone. However when combined with other market information and the price bars (heresey I know) they are useful in that all the patterns are really divergences and over bought / over sold situations. Having been through most of the chat rooms or advisory services on the web and come to the same conclusions as you cite in your article, I`m left with the same question I had at the beginning, which is, “if you can make money trading, why bother to set up a business selling trading advice?” On the other hand, trading is a lonely occupation and its helpful to have some people to talk to. Otherwise I get bored and just launch a trade to break the waiting!

  30. Doug,
    Nice reporting, writing and basically, very well done journal-ism. You kept good notes, found the salient points, involved yourself in intensive back-testing with TS and reported these points of understanding you arrived at. Thanks, as this depth of involvement is not so common among those who will backtest a strategy and convince themselves and others that they have discovered something closely related to the Holy Grail of trading profits in minutes or a few hours or weeks. A trader is tempered by a strong fire in the pits and pounded with a hammer, to get out the impurities and useless space, and finally becomes a very strong piece steel, capable of cutting through all the BS of our common “get rich quick” and technologically interactive “wisdom transfer” sites / rooms.

    Nothing, but the extensive experience from observing price action and the deep involvment of time to gaining awareness of the practical sensitivity of mathematical indicators, can ASSIST in managing open positions. Most are quickly searching to find fantasy-level entries and exits, and our technological culture has the tools to provide such sanctuaries, with walls lined with mirrors, reflecting only that which is in the room.

    Our brain, combined with real experience, will always be a better trade manager and indicator, than an algorithm (at least at this stage of market evolution). We can use them as tools, but the ability to manage oneself (rather than managing one’s computer) will take precedence in trading profitably over the magical indicators that can be found at the corner market. All lasting traders seem to start simple, get very complex, and then return to simplicity, when simplicity was finally understood through the journey through complexity. All the rest of the 90% (or whatever percentage) will be looking for someone to tell them how to believe (and such is all of human history it seems without too much contradictory evidence).

    Keep up the excellent writing. Your eyes see well, your hands type with precision.

    Cheers Mate!

    ryan

  31. Doug,
    Well done. I have been around Woodies chat room for about a year. In my opinion, your conclusions are fair. I sim traded 15 tick range bar for 8 months and compiled stats on hundreds of trades just to realize that if you simply TRADE THE DAMN PATTERNS blindly you will LOOSE YOUR DAMN ACCOUNT. However, if you analyze your stats carefully, and become more selective based on your stats, CCI ( not necessarily woodies patterns ) offer a good building block to a profitable trading plan.
    To make your analysis of Woodies group complete, I must add one observation; perhaps not the entire PFG Best as an organization but definitely Neil Rogers is a piece of shit not just as a broker but also as a person.

  32. I have searched the Web and NEVER found anyone who has claimed success with WCCI. His new book is a disaster. The PFG manual located FREE on his site is better. But W never says EXACTLY where to enter or exit. He just offers “suggestions.” When you really dig into Woodie’s info., you fund there are NO exact rules, and no mention of price. I followed him for 2 years. The chat room will quickly ostracize you if you write anything negative. Or your “critical” question will just be ignored or shrugged off with a quick word or two. Forget it. And do NOT waste your money on the DVD set. Oh, and I did nothing but lose money on Woodie’s “nebulous” setups.

  33. After nearly two years of WCCI study and research, I find it is necesasry to screen out many signals. I find Stoc helpful to screen out some, and observing the price action screens out others. I have found the Hood from Extreme, which Woodie no longer uses, produces the best results, and the 100 lines are great for exiting or entering trades, but be prepared to exit quick if it retraces. When they stopped posting results, right after I joined, I became very suspicious. I also believe the longer time frames offer a better chance by eliminating the static.
    I have not used the range bars. Perhaps there are other indicators that will help eliminate the bad signals. I lost for a full year. Now I make money by paying attention to support and resistance, trend direction, combining common technical knowledge, fibonacchi, Elliot Wave. How much credit is left to go to CCI? I have no way to measure. I know the zero line reject is sure good for losers. You must have a very strong trend to have any success with zero line rejects. Anyone got any help for me?

  34. Ok, I read this whole blog as well as the comments. Here are my findings.

    I am a successful trader. I have MANY setups and methodologies. I have more than I know what to do with. I have a limited amount of capital, but it continues to grow and I am now managing other people’s money now as well.

    I often tell anyone who will listen what I do and how I do it. Usually friends or people that I want to help. I also would have no problem sharing what I know for a fee.

    I can make money with nothing more than a yahoo chart and a DOM. That’s because I spent many years watching ticks.

    The most important piece of trading is money management. You can flip a coin for entry. It’s how you manage the trade that makes the difference. Thus if I “taught” someone how to trade, it would be less about setups and more about management and psychology.

    The “wholly” grail is about being a “whole” person mentally and financially. Thus successful trading or ANY success will be a by product of said.

    Now as far as WCCI. Leave him alone. There is nothing wrong with a guru or anything of the like, just like there is nothing wrong with random entry and good management. My point is that two people with equally accounts, both sitting in the WCCI room, with BOTH get different results. I can understand why they want to shut those people up who are contrary to the mission. It’s because people have a sense of something that works FOR THEM and if you come in there and get negative, you might mess them up. If you want to question his methods or his cult, then make a new website and let people visit and discuss it there. What I mean is this. I absolutely don’t want anyone’s opinion when I am in a trade. I will hide all I can from the world because they will mess me up.

    I can tell you first hand that I have shared some VERY nice secrets I have learned and ironically, I have received responses similar to that of what Doug Tucker has provided herein. This is not to say that Doug doesn’t provide value, but rather anyone from WCCI could come and critic’ his site equally to the way he criticized theirs.

    Bottom line. Stop whining, Shut up, and trade. The real secret to this game is capital. You 1-5 lot traders will get killed out there or make a little lose a little. The way to survive is capital and position sizing.

    I’m out!

  35. Read this article years ago. Returning to it now after having some success with a stripped down CCI system.

    To be honest, I never bothered looking into the CCI club because there’s so much crap on the homepage. Gave me a headache just looking at it. Don’t like talking to others anyway.

    I came across the CCI pdf and just adapted the system after 5 minutes of trying it. Looking at the CCI patterns is a good idea – even if they are lifted from other sources. And I did need to get rid of prices but only when starting out in demo trading to gain trust in the system.

    A fast setting (CCI 14) is only good for trying to get a tight entry / exit in a nice long trend. No good trying to trade noise – you’ll get cut up and bleed to death. You need to look at the price conditions to know that. A slower value works better to absorb noise BUT only with your own set of management rules in addition to the less important CCI rules.

    A CCI chart is almost similar to a MACD chart , e.g. 5 minute CCI 34 and 5 minute 4,34,14 MACD. The strength is in the patterns, not the indicator. Even then, you can be very successful with just the ZLX and ZLR patterns as a trend follower in the right markets but only with your own money and stop-loss rules to protect yourself with (You WILL suffer losses). On it’s own, WCCI will ‘probably’ not work (in present conditions). Discretion overlays the mechanical.

    Due diligence, people. Put in the ground work before committing money.

  36. I was in the original woodies room way back when there was maybe 10 people in the room. The popularity of the room has grown but the writer fails to understand that Woodie cannot give exact entries for many reasons — one being it would violate securities rules/laws. Image the compliants and lawsuits if some bozo with a 5k account “misread” a trade that Woodie recommended. Who needs that problem? Hence the format of the CCI room.
    Woodie trades his own system profitable because he has experience, a bankroll, keeps stats and has time in market. Most “traders” (99%) are part timers looking for quick money, woefully under capitalized, impatient, no money management skills, or just can’t comprehend basic math. His site is a place to start – thats it. Woodie tried many years ago to bring “investors” in to trade a computerized program but it failed – for many reasons. One there is no such thing as a black box system. If one does exist you would never know about because the hedge fund that has would never share it.. So anything advertised as a trading program is a loser-guaranteed. My sense is the writer has tried many trading systems and his “slump” was basically ” I burned my brokerage account again”. and I need to find another “holy grail”.
    I do agree with the Mr. Tucker about the asking of questions in the room and being shut down. That does exist. It didn’t use to, until the site started attracting hundreds of people per day and woodie simply could not answer every question on his “free site” — image the chaos. So the forums are bit more useful for free flowing ideas or questions. There is no easy road to trading professionally otherwise every nitwit with a computer and ameritrade account would be millionaire – since the average account size at these firms is barely 16k — you get the point.

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  38. I’m not yet succesful trader but every one of my big losers so far were due to arrogance/ignorance, mostly a failure to either to respect the importance of news/events, sticking to my directional bias when the price hit a “wall” that it couldn’t penetrate and then ending up trying to pick bottoms (counter trend).

    I believe the first step in becoming succesful is finding out what move the prices, ie. what created the supply or demand causing the movement. The moment I learned that indicators are just derivatives of the price I started looking for other things. Also if all the trading platforms contain a set of indicators, the most logical thing to me is that if those indicators work(ed), then they stop working (for the rest of us) when insider who can get the lowest latency access possible starts using it with millions.

    The information I look for in the web is hints of ideas I haven’t heard of before. Also I believe that edge by definition is something that only few can have in order it to work (everyone can’t win the tournament), so that discounts anything based primarily on well known indicators – those are at most a confirming element.

    My recommendation?

    If you want to get serious and possibly backtest things later in more credible manner: every time you see or read/hear something that affects the way you view the market conditions, take a note of the time and the new “bias”. When backtesting, you can then use this information to bias your backtests in discretionary manner. eg. perhaps you read a rumor of possible central bank action at certain time, if your future backtesting always incorporates these informations you noted down when they happened, that could have significant effect. If “buy the rumor, sell the news” applies, you’d want to also incorporate a note of when the rumor became the news in your view so that the backtests can use this information.

    I’ve read about a profitable mechanical trader and it was said they use several systems and switch them around based on market conditions, and condition changes are usually based on some news or event. Your backtesting should thus contain information on the conditions changes and have the system in test only active in the backtest period when your notes said such (eg. bullish,bearish, ranging, avoid trade etc).

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