Charting and Studies User Guide - CQG.com

CCI Steps (CciStep)
Philosophy
Page 513
This study records the closing value of a bar when the moving average of the Cci crosses up or
down. This enables the ability to redefine divergence by allowing flexibility in the established
mantras associated with the subject and also qualify the strength of the trend and what the
highest timeframe chart is trending. This means that the trader knows what timeframe chart
should be dominating there core technical based signals.
Therefore Cci Step does three things. Identifies trends, is the basis of qualifying divergence and
dictates the timeframe chart to be analyzed. Please see chapter 3 and 4 of the book Trading
Time for an expanded philosophy statement.
In order to understand and qualify both trend and divergence the studies should be applied two
times. The first time records the closing value of the bar and by left clicking a second time and
modifying the Value to Record to Base study.
The increased flexibility in understanding these points derives from the ability to select what
price should be used to qualify. This means if for example the relationship of the close instead
of high and lows is used, it reveals the ability to quantify divergence in sideways markets in
order to produce and early warning to a break out and new trend. This is referenced as
divergence as a continuation. This use of different momentum indicators and variables of them
to create divergence enables the trader to define how aggressive or conservative they wish
there signals to be.
Interpretation
The use of Steps can be interpreted for both the use as a divergence and trend qualifier.
For divergence, the steps up or down between the value of the bar and the indicator should be
going in opposite directions. The aggressiveness of that divergence is the number of
consecutive times this occurs. Aggressive is 2 times and conservative 3 times. It is very rare for
markets to step in opposite direction 4 times, whatever the timeframe used, market or
indicator. The qualifying of divergence is dictated by the direction that the steps are moving in
e.g. when the moving average crosses up it is doing it at a higher level than the previous cross
up (i.e. the study steps up), but the closing value of the bar on crossover of the moving
average is lower than the closing value of the bar on the previous crossover (i.e. the study
steps down). This would constitute positive divergence.
To indicate a trend qualifier the opposite is true. The steps up or down between the value of the
bar and the indicator should be going in the same direction (i.e. both step up or down). This
confirms that the indicator is showing more momentum by reaching a larger extreme and that
the value within the trend is also continuing to a larger extreme.
One of the hardest tasks a trader confronts is how to understand what is the dominant time
frame and therefore the one to be referencing. A second problem is the ability to ride a trend
through to its conclusion from a short term trade to a long term if the analysis dictates that is
what should be done. Steps qualify this process. The dominant timeframe is the highest
timeframe chart that shows any step whether on the bar or the indicator that has stepped in
the same direction on a consecutive basis on 4 occasions. As trends extend, they must step up
timeframes in order to signal that the trend is continuing and maturing. Different asset classes
can extend varying timeframes before the trend stalls. Majors on Fx will rarely go more than a
half day chart, whereas cross rates can move to daily charts. Mean reverting markets such as
Bonds will also rarely extend to historical charts. However, individual stocks and index’s can
extend to weeks and even months which means trends that began as a short term trade on
Charting and Studies User Guide