CCI Trading Strategies Basics & Features of CCI

From oversold levels, an advance above -100 and trend line breakout is considered bullish. Horizontal lines at ±200 were added using the advanced indicators options. From early February to early October , Google exceeded ±200 at least five times. The red dotted lines show when CCI moved traders trust review back below +200 and the green dotted lines show when CCI moved back above -200. It is important to wait for these crosses to reduce whipsaws should the trend extend. Notice how Google kept on moving higher even after CCI became overbought in mid-September and moved below -200.

Most of the time, the indicator chart is in the neutral zone, indicating that the market is relatively calm. When the indicator chart leaves the neutral zone, the tool indicates a price momentum. Lambert’s trading guidelines for the CCI focused on movements above +100 and below −100 to generate buy and sell signals. Because about 70 to 80 percent of the CCI values are between +100 and −100, a buy or sell signal will be in force only 20 to 30 percent of the time. When the CCI moves above +100, a security is considered to be entering into a strong uptrend and a buy signal is given.

• The price chart makes a new high, higher than the previous one, while the CCI makes a lower high.
• A bullish divergence occurs when the underlying security makes a lower low while CCI forms a higher low, which shows less downside momentum.
• DUAL Commodity Channel Index is a method used in technical analysis to identify when an asset or market is overbought or oversold.

Just like most oscillators, the CCI indicator is developed to define the overbought and oversold levels. The CCI indicator is an oscillator tool that is very popular amongst investors. It can be applied in the trading of all assets such as cryptos, commodities, shares, etc.

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Conversely, bullish divergences often appear in extended downtrends. Finally, let us look at the gold futures chart GC, timeframe M5. To determine the overall global trend, you can use a simple moving average with a period of 200. A sign of a trend change will be the closing of the trading day below/above this moving average. When working with level 0 of the CCI indicator, it is important to determine the trend; otherwise, the trades will be unprofitable.

Learn how to trade forex in a fun and easy-to-understand format. The figure above shows a weekly uptrend since early 2012. The CCI, or Commodity Channel Index, was developed by Donald Lambert, a technical analyst who originally published the indicator in Commodities magazine in 1980.

When CCI leaves the oversold zone, and the price line intersects the moving average chart from below, a buy order is opened. When the CCI indicator line crosses level +100 from below, then reverses and crosses it in the opposite direction, a sell order is opened. Therefore, the CCI can be used to identify an overbought or an oversold level. In most trading platforms like the MT4 the default period that is used is 14 .

New Trend Emerging

All signals can be conventionally grouped into two types, signals to trade in the trend and signals to trade in a correction. The index looks like a curve that is located either above or below zero. The indicator also has levels +100, +200, and -100, -200, they are used to define the price momentum, as well as the overbought or oversold condition of the market.

The percentage of CCI values that fall between +100 and -100 will depend on the number of periods used. Determine significant support and resistance levels with the help of pivot points. Commodity and historical index data provided by Pinnacle Data Corporation. Unless otherwise indicated, all data is delayed by 15 minutes. The information provided by StockCharts.com, Inc. is not investment advice.

CCI Oversold in Uptrend

This would have told longer-term traders that a potential downtrend was underway. More active traders could have also used this as a short-sale signal. This chart demonstrates how in early 2012 a buy signal was triggered, and the long position stays open until the CCI forex arbitrage trading software moves below -100. The longer the period chosen , the less often the indicator will move outside -100 or +100. Short-term traders prefer a shorter period since it provides more signals, while longer-term traders and investors prefer a longer period such as 30 or 40.

The second indicator in the system is called Turbo CCI or TCCI. The Commodity Channel Index is a good tool for any trader. In many ways, the principle of its operation is similar to other oscillators, but it also has its own unique features. A bullish divergence occurs when the underlying security makes a lower low while CCI forms a higher low, which shows less downside momentum. A bearish divergence emerges when the price chart hits a higher high while the CCI dipped, the line makes a lower high or repeats the same one. The arrows in the chart point to the Price Action patterns that provide entry points with a good reward/risk ratio.

From overbought levels, a decline below +100 and a trend line break could be considered bearish. The CCI can be adjusted to the timeframe of the market traded on by changing the averaging period. While divergences reflect a change in momentum that can foreshadow a trend reversal, chartists should set a confirmation point for CCI or the price chart. A bearish divergence can be confirmed with a break below zero in CCI or a support break on the price chart. Conversely, a bullish divergence can be confirmed with a break above zero in CCI or a resistance break on the price chart. The definition of overbought or oversold varies for the Commodity Channel Index .

What is the CCI indicator Indicator?

The Commodity Channel Index can be calculated using Microsoft Excel software. This type of calculation can be useful for those traders who trade on a platform that can’t add the CCI indicator to the chart. In the chart below, red vertical lines mark the days when the signals to buy in the USDCHF uptrend emerged. The chart below displays the CCI signals to trade the EURUSD downtrend.

Product channel index helps notice weakening or end the trend and change of its direction. This indicator helps you determine the peaks and troughs in price of an asset, and can serve as a signal to ease or end the trend and change of its direction. The best timeframe for trading with the commodity channel index CCI indicator is D1, but you can trade in a shorter timeframe as well. To do this, you need to add some trend indicators to the trading system in order to reduce the number of false signals. You see from the above example that the previous trading day closes below the MA 200.

CCI Trading Strategies

Its functionality is similar to the CCI indicator since they both vary between negative and positive prices. They also assist investors to spot overbought and oversold levels in the market. Trading with multiple timeframes provides more buy or sell signals for active traders. Traders often use the CCI on the longer-term chart to establish the dominant trend and on the shorter-term chart to isolate pullbacks and generate trade signals.

The Money Flow Index is a trading tool that incorporates volume and price data. It can be used to generate trade signals based on overbought and oversold levels as well as divergences. Signals appear frequently, such a frequency can cause a trader to overtrade. It is also necessary to take into account important financial news, they can bring significant price fluctuations roinvesting broker and changes in the technical analysis picture of the market. Therefore, I recommend starting intraday trading only after a detailed study of the CCI indicator and gaining experience in trading in longer timeframes. CCI bullish and bearish divergences are strong reversal signals in technical analysis that suggest a soon correction or a price reversal.

The market’s movements repeat from time to time, although the repetition might not be exact. The article presents an ultimate guide to trading with the CCI indicator. Read on, and you will learn the history of the CCI Commodity Channel Index, major calculation formulas, and basic trading strategies using the CCI to make profits. When using the CCI indicator, you only need to adjust the length or its duration. By default, most trading platforms provide 20 as the length of the indicator. However, it is recommended that you take time in a demo account testing various periods.

The first one appears on April 14, 2021; the second one is on May 27, 2021. For convenience, you can fill in the “Parameters” table by entering the name of the analyzed instrument, the analysis period, and the CCI calculation time interval. If you need to calculate CCI reading for a period other than 20 days, then you can easily edit the template to your liking by reducing or adding the number of periods yourself. When you want to trade in a correction, it is advised to expect when the index goes beyond the level of +100 or -100, and then begins to return back to the neutral zone.

You must first compute the typical price, using the high, low, and close for the interval. The more periods used to calculate the CCI, the higher the percentage of values between +100 and -100. With the exit, you may want to allow the price to rally above +100 and then dip below zero ​(instead of +100) before closing the long position.

Volatile securities are likely to require greater extremes than docile securities. Trend changes can be identified when CCI crosses a specific threshold between zero and 100. Regardless of how CCI is used, chartists should use CCI in conjunction with other indicators or price analysis. Another momentum oscillator would be redundant, but On Balance Volume or the Accumulation Distribution Line can add value to CCI signals.

Divergence means a situation when the indicator and the price chart move in opposite directions. There are four signals in the period from September 2021 to January 2022. Reaching the downside limits of the oversold zone means the downtrend is weakening, and an ascending correction is about to start, or the ongoing trend might soon turn up.

The last step includes the multiplication of the generated final result and a constant, the majority of values will range between the values of +100 and -100. The CCI function is based on the comparison between the current price position and its average value that is measured over a certain period. The result of this difference presents how strong or weak the market is.

The trade is entered the next day after the signal appears. In the first case, the downward movement is limited and would not yield a reward-to-risk ratio of more than 3 for a trade. The market provides two trading signals to buy USCrude oil.