measures the current
trades

The CCI indicator can help traders to understand if a falling price may turn into a promising uptrend. Thus, the price line may be falling yet the CCI at the same time may be rising. Parabolic SAR is an efficient lagging indicator that follows the price trend and is presented on the chart with dots over or under the price line. The key element of its functionality is that it helps traders to find the latest price reversal zones. Since Lambert’s original guidelines, traders have also found the CCI valuable for identifying reversals. The CCI is a versatile indicator capable of producing a wide array of buy and sell signals.

It is often used for detecting divergences from price trends as an overbought/oversold indicator, and to draw patterns on it and trade according to those patterns. In this respect, it is similar to bollinger bands, but is presented as an indicator rather than as overbought/oversold levels. CCI is a versatile momentum oscillator that can be used to identify overbought/oversold levels or trend reversals. The indicator becomes overbought or oversold when it reaches a relative extreme.

CCI Trading Strategy Basics

Conversely, due to an oversold market, the price is more likely to reverse and go higher. The CCI is dependent on price and this makes it a lagging indicator. Also, the indicator is not a timing tool as it does not indicate at what particular point in the market you should be entering. If you want to use this indicator, backtest your strategy and optimize it for robustness before putting your money on the line.

time the cci

The CCI is simply an oscillator indicator that moves the majority of the time between +100 and -100. How the pro’s trade using the CCI trading system is very easy to understand. In this article, you will also learn about the CCI indicator and why it is useful in your trading. If you want to break from the crowd mentality and join the professional traders then what you’re about to learn next will grab your interest. Long-term profitability demands different types of trading skills that our CCI trading strategy PDF will reveal to you next.

CCI trading strategies (backtests)

The CCI indicator was created by Donald Lambert and was initially used to identify cycles in the commodity market. However, it tends to perform the same in the stock market or the Forex currency market and even the cryptocurrency market for that matter. The 0.015 constant ensures 70 to 80 percent of CCI values fall within the +100 to -100 range. This strategy does not include a stop-loss, although it is recommended to have a built-in cap on risk to a certain extent. When buying, a stop-loss can be placed below the recent swing low; when shorting, a stop-loss can be placed above the recent swing high.

  • The most effective way to use the Commodity Channel Index, like the majority of oscillators, is to use it as a filter.
  • But for a better understanding of what exactly this indicator shows, it is necessary to understand how it is calculated.
  • 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.

Typically a value of 100 is identified as https://forex-world.net/ and a reading of -100 is identified as being oversold. The example below is based on a 20-period Commodity Channel Index calculation. The number of CCI periods is also used for the calculations of the simple moving average and Mean Deviation. The Relative Strength Index is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions.

The nature of the cci indicator of the indicator from the level of 0 to +100 and from 0 to -100 prompts the future price movement. If the indicator line during this period is sharp, rapid, then a strong rise/fall can be expected. If the indicator line is flat and hardly overcomes the level, this indicates the movement’s outcome. When CCI crosses the +100 level from below, and the price crosses the moving average in the same direction, a sell order is opened.

Thus, a potential buy or sell signal can be spotted when the CCI crosses the MA line. Additionally, if the MACD moves over or under the same line, it can be considered a validation of a buying or selling signal generated by the CCI indicator. Adaptive-Lookback CCI w/ Double Juirk Smoothing is a CCI indicator with Adaptive period inputs. The adaptive calculation in this case is the count of pivots in historical bars. This indicator is also double smoothing using Jurik smoothing to reduce noise and refine the signal. The Commodity Channel Index measures the current price level…

Which indicators you can combine with CCI

A positive divergence below −100 would increase the robustness of a signal based on a move back above −100. A negative divergence above +100 would increase the robustness of a signal based on a move back below +100. The figures above use a weekly long-term and daily short-term chart. Other combinations can be used to suit your needs, such as a daily and hourly chart or a 15-minute and one-minute chart. If you’re getting too many or too few trade signals, adjust the period of the CCI to see if this corrects the issue. Stockcharts.com, Freestockcharts.com, and trading platforms such as Thinkorswim and MetaTrader all provide the CCI indicator.

In this article, we are going to be reviewing what is CCI indicator, how to use it, and how it works. We will take a look at the different signals it will provide us and how to interpret them in the best possible way. We want to have strength to the upside if we’re going to buy EUR/USD and we want to see continued strength in the CCI reading when the price is pulling back. The reason why the CCI formula uses a constant of 0.015 is to ensure that the CCI value would not fall between -100 and +100 that often. But, of course, that the CCI values are dependent of other variables such as the look-back period.

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The indicator has been in use for more than three decades now and has become more popular with the emergence of automated trading systems. The CCI reading is used by professionals to compare against expectations. A reading that is above expectations can be regarded as positive, while a reading below expectations can be regarded as negative. With that said, it not clear that a higher/lower reading automatically corresponds to a positive/negative surprise to the financial markets, discussed below. Overbought and Oversold conditions can be used in their more traditional sense to identify future reversals.

The purpose of this library is to organize momentum indicators in just one place, making it easy to access. In addition, it aims to allow customized versions, not being restricted to just the price value. Compute the simple moving average of the above for a given number of periods used. Values below 100 indicate a pessimistic attitude towards future developments in the economy, possibly resulting in a tendency to save more and consume less. As with most oscillators, divergences can also be applied to increase the robustness of signals.

Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans. It is widely used in trading, as it allows you to increase your odds of success. To buy, the breakout of the -100 level from the bottom up; to sell the breakout of the level +100 from top to bottom.

It is a more complex tool that uses the Moving Average to find the momentum and trend direction of an asset. The CCI indicator, in contrast, presents the oversold and overbought areas earlier than the MACD. Moreover, it is used to present the deviation from the average price. Stepped Moving Average of CCI is a CCI that applies a stepping algorithm to smooth CCI. This allows for noice reduction and better identification of breakouts/breakdowns/reversals.

The main drawback of the CCI is that consumers that are surveyed may lack the necessary information to assess business, labor, and financial conditions for the next six months. Furthermore, the reading from the index is not generally useful for any type of forecasting. The Consumer Confidence Index acts as a forward-looking economic indicator and is closely followed by economists, analysts, government entities, business leaders, among others. Furthermore, the index is followed by the Federal Reserve when determining their monetary policies. Can toggle the visibility of the CCI as well as the visibility of a price line showing the actual current price of the CCI. Can also select the CCI Line’s color, line thickness and visual style .

Another possible combination can be done between the CCI and on-balance volume . The latter is an indicator that monitors the accumulation and distribution periods of a trend. The core element is the comparison between the current day’s closing price with the last day’s closing price. Ιf today’s value is lower than the last day’s value, it is added to the OBV. Couple of confluencial reversal signals from popular indicators (W%R, RSI & CCI).

Based on the simulations we decided to backtest the CCI indicator by using a 9-day lookback period and a buy threshold of -90. However, this is a backtest that might be susceptible to curve fitting. We have never had any experience with the CCI indicator before and thus this is the first time we backtest the indicator.

Last words about the Commodity Channel Index indicator

However, we found better results changing the CCI indicator settings to a 30 periods moving average. Like always, changing that parameter depends entirely on you, but we always like to provide you with our best experience. The overarching principles of the CCI strategy can be applied to your own trading strategy as well. If you would have taken the first signal the first time the CCI indicator reached the -200 level, you would have lost money.

A shorter timeframe makes the indicator more sensitive, while a longer timeframe makes it less sensitive. Members can click the green arrow next to “advanced options” to add horizontal lines to mark overbought or oversold levels. Two lines can be added by separating the numbers with a comma (200,-200). A longer timeframe, 40 versus 20, was used to reduce volatility. There are three sizable divergences over a seven-month period, which is actually quite a few for just seven months. First, UPS raced to new highs in early May, but CCI failed to exceed its March high and formed a bearish divergence.

position

In this case the trend is first established on a weekly or monthly chart and then traders use short time frames to trade, but only trade in the direction of the long term trend. Another type of oscillator that is commonly used by traders is the Stochastic Oscillator. 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. The Commodity Channel Index is a momentum oscillator used in technical analysis that measures an instrument’s variations from its statistical mean. The CCI is a very well-known and widely-used indicator that has gained a level of popularity in no small part due to its versatility.