You can see in the chart above that once the CCI indicator reaches the key overbought and oversold levels, the price starts moving in the opposite direction soon afterward. When the trade is entered according to the first signal, the market doesnโt reach the take profit and starts a correction. The CCI indicator breaks through the zero level from top to bottom (marked with the blue line). In this situation, I recommend exiting the trade, even if there is a loss, as the conditions for holding the position are not met, and the indicator generates an opposite signal. One should not enter a sell trade at the close of the day, marked by the blue line, as the overall trend is up.
Subscribe to The Real Trader Newsletter
Creator Donald Lambert himself recommended using the daily timeframe for analysis. This is natural since in the 80s of the last century there were no convenient modern terminals that broadcast every second online, where you can even set a 1-minute timeframe. The indicator is more suitable for working in the sideways channel, that is when there is no pronounced trend on the market, and the price is within a narrow range.
When the CCI indicator starts to rise back above -100, the bullish trend resumes, thus giving traders a good level to enter the trend. Mean deviation is derived by subtracting the 20-period SMA value of the typical price from the typical price. The values are then summed up and divided by the total number of periods, (which is 20).
In this guide, weโll cover everything you need to know about the CCI indicator, from what it is and how it works, to how you can use it to improve your trading. Add the indicator to your chart and draw horizontal lines at +100 and -100 for visual cues. You can customize the period directly on your chart platform without touching the underlying formula.
Also, pay attention to the CCI moving very strongly against your position, or diverging โ these are warning signs to consider getting out. In this article, weโll look at the CCI, how the indicator works, what CCI signals are often interpreted to mean, and some common ways itโs used in market analysis. Both are momentum indicators, but CCI has no fixed boundaries and reacts more sharply to price changes. RSI stays between 0 and 100, while CCI can go beyond +100 or -100. TrendSpider is by far the top software for trading and backtesting Commodity Channel Index; with point-and-click backtesting requiring no coding, it’s a game-changer! TradingView is also good, offing pine code backtesting and global stock exchange, crypto, and forex coverage.
If you know this, then you can gain an edge when trying to anticipate future price movements. The advantage of such popular indicators is their availability. The Commodity Channel Index does not need to be downloaded or installed additionally.
We have the standard forex cci indicator with the default settings which is a 14-period lookback period. This serves as the basis for calculating the cci data for the past 14-periods. (If applied on the daily chart this would be 14-days or if applied on a 1-hour chart, this would be the past 14 hours). The easiest way to use the CCI indicator is to identify overbought and oversold levels.
Timeframes and Reading CCI
Yes, on 1-minute and daily charts, the Commodity Channel Index is 50-53% accurate, producing many more profitable trades than other indicators. CCI could be the core indicator for your trading as it beats a buy-and-hold strategy. Over 20 years of testing, it produced a return of 1180% versus a buy-and-hold strategy profit of 555%. The CCI oscillator can move above and below the zero line, which serves as a reference point for overbought and oversold conditions. Values above +100 indicate an overbought condition, while values below -100 indicate an oversold condition. If the indicator moves away from these thresholds, the price will likely reverse or pause before continuing its trend.
Using the CCI to spot divergence
However, there wonโt be a disaster if you enter a sell trade in such a situation; you will just face a small loss within your CCI trading system. In the above example of a pro’s trade, you see that the general oil trend is up; it started in April 2020. A bullish signal appears on November 9, 2020, when the CCI line crosse level 0 upside. Next, the price starts growing, which is a good buying opportunity.
- Based on the CCI indicator, you can create a full-fledged trading system.
- Do you want to test any indicator, chart pattern, or performance for any US stock?
- We do the same procedure for each trading day, including the very beginning of September 26, 2022.
- As a momentum based indicator, the CCI index belongs to the oscillator group of indicators.
Yes, the Commodity Channel Index is good for buying and selling signals. My 396 years of TrendSpider backtests revealed conclusively that the best setting for the Commodity Channel Index is using CCI-20 on a 1-minute chart, producing a 50% win rate. Additionally, using a CCI-50 setting on a daily chart over 20 years produced a 553% increase in profit versus a buy-and-hold strategy on the S&P 500.
Using CCI with SharpCharts
John Murphy’s Technical Analysis of the Financial Markets has a chapter devoted to momentum oscillators and their various uses. Murphy covers the pros and cons as well as some examples specific to the Commodity Channel Index. In Figure 6 below , we have extend the price action further. When you increase the accelerator, you put some effort (the engines begin to draw more gas, and the pistons drive the machine). Now, even if you ease back on the accelerator, the momentum that was built, will continue to keep the motorbike moving forward (even without any effort). At some point, as momentum starts to wear off, your motorbike starts to slow down as well.
เธเนเธญเธเธงเธฃเธชเธฑเธเนเธเธ เธเธฒเธฃเธเธฑเนเธเธเนเธฒ CCI เธเธฅเธฒเธ Forex
Avoid CCI 20 on a 5-minute chart, as this has only a 13% win rate. The Commodity Channel Index can be combined with other technical indicators to form a more profitable trading strategy. For example, combining CCI with the Money Flow Index, Price Rate of Change, or bullish chart patterns could yield higher profits. This is double the return of a buy-and-hold strategy, making the CCI-50 one of the best indicators I tested.
What is the best CCI setting for stocks?
Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. Self-confessed Forex Geek spending my days researching Cci indicator and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading!
- Finally, let us look at the gold futures chart GC, timeframe M5.
- Yet, the CCI is a more flexible and somewhat vague indicator, and there are various techniques and methods to use it.
- But notice the falling momentum as the CCI indicator turns back below +100.
- As the oscillator rises or falls, the indicatorโs value also changes.
Most traders who use it donโt have any idea about how it is derived. The farther the price moves above +100, the higher is the likelihood that the uptrend will end, as there is an overbought condition on the asset. This should already be a signal to be ready that a moment of reversal will come soon. In the classical sense, oscillators have overbought and oversold zones. CCI, in contrast to them, has several levels, and is slightly different, each of which has its purpose.