How to Trade Using the Commodity Channel Index CCI

Onchart is drawn some of the indicators, but not all, a info panel is… The Moving Average Convergence Divergence is both a momentum and trend following indicator.It is calculated by… Lesser periods lead to a more volatile indicator, while more periods will make it smoother.

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. The CCI indicator can inform the trader about various market developments. The list includes overbought and oversold price levels, divergences, and emerging trends.

It should be noted that the indicator is an unbounded oscillator. However, the range from 100 to –100 is given by default, while some trading platforms have the option for the trader to change the range. A divergence happens when the price of an asset is going in the opposite direction as the indicator.

During a Bullish Trend, price crossing above the overbought threshold may indicate strong confidence in the move and price will continue to rise. When price crosses above the overbought threshold, a fall in price may occur soon afterwards. Subtract the most recent 20 Period Simple Moving from each typical price for the Period.

commodity channel index

The upper indicator is the commodity channel index indicator and the lower indicator is the stochastic RSI. The time period to be used in calculating the SMA portion of the CCI . In this guide to understanding the Commodity Channel Index , we’ll show you what this chart looks like and how it’s calculated. We’ll also explain its components and teach you how to interpret it.

The Commodity Channel Index (CCI) Settings

Swing traders mostly rely on technical analysis tools, such as indicators,… It must be noted that when the CCI moves into the overbought and oversold levels, it is not a signal by itself. A specific entry point is identified using supplementary tools, for example, Price Action patterns. If the candlestick has a small range, it makes sense to consider the previous day and set a stop loss below the daily low preceding the signal day. If the candlestick exceeds the ATR by two or more times, the stop loss is set at the middle level of the signal candlestick.

This scan reveals stocks that are in a downtrend with overbought CCI turning down. First, stocks must be below their 200-day moving average to be in an overall downtrend. Second, CCI must cross below +200 to show the indicator falling from overbought levels. CCI triggered a bullish signal when CAT surged above 60 in June.

  • The position should be closed when the CCI moves back below +100.
  • For example, take into account whether the markets are ranging or trending.
  • First of all, you should remember that the CCI indicator is not a good standalone tool.

Once the CCI crosses the +100 mark from below and the price intersects the MA in the same direction, traders open sell orders. The stronger the deviation is, the higher/lower the indicator’s line will be from the zero point. Although most of the time, the line will oscillate around the +100 and the -100 marks. In many cases, it can leave the range and hit much higher/lower values.

However, it is recommended that you take time in a demo account testing various periods. 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 .

A Step-by-Step Guide to This Famous Indicator and Its Strategies in Python.

First, UPS raced to new highs in early May, but CCI failed to exceed its March high and formed a bearish divergence. A support break on the price chart and CCI move into negative territory confirm this divergence a few days later. Second, a bullish divergence formed in early July as the stock moved to a lower low, but CCI formed a higher low. This divergence was confirmed with a CCI break into positive territory. Also notice that UPS filled the late June gap with a surge in early July.

commodity channel index

In the EURUSD chart, you are already familiar with, orange lines mark wrong, according to the trend direction, entry points. Note that entry points 1,2, and 4 must have ended the trade with a stop loss. Entry point 3 would yield a profit, but the growth is limited, and the price fall continues after it. The CCI indicator settings and trading principles are similar to other oscillators. All signals can be conventionally grouped into two types, signals to trade in the trend and signals to trade in a correction. The first interval was used for relatively short-term trading.

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For example, when the CCI surpasses +100 and then gets back below it, traders open sell positions. In that case, the strong uptrend, indicated by the line’s beating the +100 mark, ends, and the trader expects a reverse market movement. Thanks to its efficiency, the CCI indicator became a favorite tool also of equity and Forex traders over time. Most use the indicator to determine their entry and exit points, when to jump into a trade or when to avoid one, and whether they should add to an existing position, etc. This CCI chart indicates the possibilities of overbought and oversold conditions and provides valuable insight to the trader to find a buy or sell opportunity. You may notice a stark difference from RSI or other oscillators.

commodity channel index

The second sheet of the template, “Parameters”, will display the calculated CCI as a chart. Also, the closing price of the specified periods will be imposed on the chart. If you trade each situation when the CCI crosse level 0 upside or downside, you will face a situation when the market movement is rather limited, or a stop loss works out. 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.

A rally to 100 or -100 to signal a new trend may come too late, as the price has had its run and is beginning to correct already. This is when the price is moving one way but the indicator is moving another. A weakness in the trend happens when the price is ceteris paribus economics increasing and the CCI is decreasing. Momentum measures the chances of a price action continuing in the current trend, whether falling or rising. The CCI indicator should be used in conjunction with other technical analysis or fundamental analysis tools.

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It may deceive you or feed you with insufficient information. Doing so will allow you to confirm its signals and make more informed decisions. Determine the Mean Deviation for each period based on the formula mentioned above. FX Sniper’s T3-CCI indicator modified with bar color and regular divergence. Also added option to change bar color based on Elder’s Impulse System. Many thanks to RafaelZioni for his great work making the EasySys1 script which i modified to create this script.

Predictions and analysis

As you can see above, the price tends to recover when the CCI reaches below -100. As you can see, the price calculation can be very difficult for most people. The TP is known as the Typical Price and is calculated by adding the high, low, and close and dividing the result by 3. The figure above shows a weekly uptrend since early 2012.

Uses of the Commodity Channel Index (CCI) Indicator

In the above chart, we began by plotting the horizontal range that was created by the markets. To the downside, when the price breaks past the lower range, look for the CCI values to fall below -100. Also, if the price reaches the lower range, look for the CCI indicator to show an exhausting momentum.

He has been a professional day and swing trader since 2005. Cory is an expert on stock, forex and futures price action trading strategies. When you hear the “Commodity Channel Index” term for the first time, it is natural to think that it is designed to work only in the commodity markets. However, aside from futures, you can also apply it to equities, forex, and a variety of other asset classes. The vital thing to note is that it should be adjusted depending on the traded instrument’s historical characteristics.

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