CCI Trading Strategies Basics & Features of CCI
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. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re top 10 books about forex also a community of traders that support each other on our daily trading journey. The Keltner Channel or KC is a technical indicator that consists of volatility-based bands set above and below a moving average. As with most technical indicators, the CCI should be used in conjunction with other forms of technical analysis.
The definition of overbought or oversold varies for the Commodity Channel Index . ±100 may work in a trading range, but more extreme levels are needed for other situations. ±200 is a much harder level to reach and more representative of a true extreme. Selection of overbought/oversold levels also depends on the volatility of the underlying security. The CCI range for an index ETF, such as SPY, will usually be smaller than for most stocks, such as Google.
We are beginning the third day today which means upward movement should be imminent. Of the 15 times the RSI algorithm has signaled on the daily chart has lead to the stock rising a minimum of 11% over the next 35… The commodity channel index CCI is primarily used as an oscillator to look for overbought and oversold areas in the market. Also, the indicator allows you to trade with the trend and in the correction. In the first case, the CCI indicator reached level +200, and there is a Pinbar in the price chart. The take profit should be 3 times greater than the stop loss.
The MACD is another type of momentum indicator popular in the trading world due to its high accuracy and effectiveness. 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. This scan reveals stocks that are in an uptrend with oversold CCI turning up.
Thus, you can have a ready-made tool for calculating CCI in Excel, which is not tied to the trading terminal and can be used depending on your objectives. how to choose stocks for long term investment CCI leaves the overbought zone and falls below level +100. Also horizontal levels can be added or removed in “Levels” tab in the settings window.
The Commodity Channel Index Trading
Other indicators, such as the Moving Average, can be used to define the trend. However, I believe it is best to stick to the Dow Theory and identify the trend using key highs and lows in the daily chart. We need to know the high, low, and close of the last 20 trading days, including October 21st. That is, we need the data from September 26 to October 21, 2022, as Forex trading is closed at weekends. 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.
- The price chart hits a high, higher than the previous one, and the CCI makes a high lower than the previous one .
- You see from the above example that the previous trading day closes below the MA 200.
- First, stocks must be below their 200-day moving average to be in an overall downtrend.
Another way to improve the trading strategy is to use multiple time frames. 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. This system offers trading solutions provider some flexibility with closing the positions. Given the 4-hour timeframe, a trader can manually move the stop loss, setting the exit price using the Parabolic marker. Thus, you can capitalise on the entire trend without limiting your profit to a pre-set level.
Potential Buy & Sell Signals
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. In this way, the indicator can be used to provide trade signals when it acts in a certain way.
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. 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.
CCI vs. Stochastic Oscillator
When you have an idea of the primary trend, trading with the CCI indicator won’t be difficult. Next, you should look at buy and sell signals provided by the CCI indicator, having identified the general trend in the market using key highs and lows in the price chart. To trade a CCI strategy in a strong uptrend, you should expect the indicator line to break the zero line upside and enter a buy trade.
A variety of trading strategies and tactics can be employed in the commodities market. This article will help you to understand the variety of commodity trading like a pro trader. In order to achieve the best results, most investors tend to combine various indicators to generate more reliable and efficient information for the price trend. By drawing their information from different perspectives, they are likely to make potentially more successful trading choices.
The arrows in the chart point to the Price Action patterns that provide entry points with a good reward/risk ratio. When the CCI moves up to the overbought zone, the uptrend might be exhausting, so there should be a correction, or the trend could reverse down. I suggest beginners master trading using these levels and then consider other ones. The trade is entered the next day after the signal appears.
How CCI indicator works
The basic trading strategy when using the CCI is to buy when it moves above 100+ and to sell when it moves below 100-. However there are some additional criteria that can be added to make the CCI trading strategy more robust and profitable in the long run. The first is to wait for a pullback that doesn’t break the zero level and then trade on the second break of the 100+ or 100- line. This increases the probability of the signal being valid.
The Commodity Channel Index vs. the Stochastic Oscillator
Moreover, it is also used to monitor the trend of an asset and alert traders about upcoming selling or buying opportunities so they will enter or exit a trade at the right time. 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. That extreme depends on the characteristics of the underlying security and the historical range for CCI. 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.
Below are listed the most common combinations of CCI with different indicators. You must first compute the typical price, using the high, low, and close for the interval. It is the simple arithmetic average of the three values. Traders use the CCI to help identify price reversals, price extremes, and trend strength. The more periods used to calculate the CCI, the higher the percentage of values between +100 and -100. While Lambert originally used CCI to trade commodities, the indicator is used across different assets nowadays.
When the CCI indicator line crosses level +100 from below, then reverses and crosses it in the opposite direction, a sell order is opened. The most effective way to use the Commodity Channel Index, like the majority of oscillators, is to use it as a filter. However, this indicator can also provide highly reliable signals to enter the market. It is important to remember that the level of CCI depends on the number of periods that are used between -100 and +100 values. Thus, if the indicator has a high percentage between the limit of -100 and +100, this shows that many periods are used.
The CCI was originally developed to spot long-term trend changes but has been adapted by traders for use on all markets or timeframes. Due to the calculation differences, they will provide different signals at different times, such as overbought and oversold readings. Finally BTCUSD Daily has a solid 13CCI trendline break for a Long signal. The signal to buy in the commodity channel index CCI is the crossing of the zero line from the bottom up. Also, a buy signal may be the CCI signal line reaching the level of -200 and the formation of a bullish divergence between the price chart and the indicator chart.