Hi Darrell, it’s very difficult to find a strategy that works well on all markets and timeframes. In this case, your best bet is to trade a trending market on the higher timeframes. I’m on a mission to develop robust algorithmic trading strategies for the forex markets. Trading Tact is where I share my trading methods and insights.

The more profitable exit strategy is to take profits when the CCI touches the +200 level. However, since the market will only occasionally give us such big trading opportunities we need to have a backup plan. This brings us to the next important thing that we need to establish for the CCI trading strategy, which is where to place our protective stop loss. The natural ebb and flow of the market are given by these short-term pullbacks that we’re going to use to trigger our entry. Waiting for a pullback in price is a more defensive trading approach. However, you can also buy right away when the CCI crosses above +100.

The Commodity Channel Index vs. the Stochastic Oscillator

The ## period simple moving average of the typical price is an average of previous days’ typical prices. This number gives us one amount that embodies all of the price movement over 5, 14, 20, 34… periods. Lambert originally developed CCI to identify huf currency converter cyclical turns in commodities, but the indicator can be successfully applied to indices, ETFs, stocks and other securities. In general, CCI measures the current price level relative to an average price level over a given period of time.

… a reading below -100 can indicate an asset has been oversold – this presents a buying opportunity. … it is calculated to produce a reading that typically moves in a channel between +100 and -100. … it is usually presented on charts using a moving average type line. … it can indicate the weakening or end of a trend, helping you enter a trade right as a trend is starting, or exit a trade before it moves against you. Notice here how the line moves outside the key levels only a few times and how it tends to remain at or beyond those levels for much longer.

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.

The CCI indicator explained – in way more detail than you wanted

It shows the sequence of price lows with the consecutive highs displayed on the chart. When the price chart is in an oversold position, crossing the -100 line upwards, this means that it is expected to rise soon. When the price chart is in an overbought position, crossing the 100 line from top to bottom, it means that its decline is expected soon. It is essential to test how your strategy reacts to the indicator’s changes with paper money before applying it within your real account. By analyzing current and past pricing data, the CCI indicator reveals how the instrument’s current trajectory fares to its historical performance. For example, take into account whether the markets are ranging or trending.

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. Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years.

• This strategy does not include a stop-loss, although it is recommended to have a built-in cap on risk to a certain extent.
• Combining the CCI with an MA to improve the signals’ quality.
• When the price chart is in an oversold position, crossing the -100 line upwards, this means that it is expected to rise soon.
• The number of CCI periods is also used for the calculations of the simple moving average and Mean Deviation.

Actual overbought and oversold thresholds can vary depending on the financial instrument being traded. For example, a more volatile instrument may have thresholds at 200 and -200. … a reading above +100 can indicate an asset has been overbought – this presents a selling opportunity.

A period here is the duration of your candlestick, which could be one minute, an hour, or a day. Using a shorter range, for example, 10 periods, might make the CCI very volatile and give you a lot of noise. The main parameter that you have to enter while using a CCI indicator is the time period. As mentioned earlier, the normal period used can be anywhere between 14 and 30 periods. This tutorial has an educational and informational purpose and doesn’t constitute any type of trading or investment advice.

Commodity Channel Index (CCI) + Moving Average Strategy

The CCI compares current price to average price over a specific time period. The CCI indicator measures the current price level to an average price over a given period. Bollinger Bands are great at detecting overbought and oversold conditions. Let’s use them to develop a countertrend strategy, and then refine our entries using limit entries and candlestick patterns. You can also use various forms of technical analysis including trend line breaks on the bull flags and bear flags that form in the pullbacks for your trade entry. As with any trading strategy, I prefer using price action alongside an indicator for any trading decisions.

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. CCI is a very well-known and widely-used indicator that has gained level of popularity in no small part of its versatility.

Now Traders have begun to use the CCI only to trade commodities but also for stocks as well. CCI gives the signal for oversold is – 100 and overbought +100. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. On this chart, we’ve had the trend change as well as the first pullback after the change.

Calculating CCI

The overarching principles of the CCI strategy can be applied to your own trading strategy as well. The CCI indicator strategy was really designed to find cyclical trends in the market and to be used as a bearish or bullish filter. 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.

CCI Indicator Guide, Calculations, Best Settings & Trading Strategy

In this case, you need to make sure enough time has elapsed between now and the last time the CCI passed above +100. Once the CCI crosses above the +200 level we take whatever the market has given to us and close the trade. Now, just because we have divergence between the price and the CCI it’s still not enough for us to risk our money on this trade. In other words, we need the price to make lower lows while the avoiding cash account trading violations has to do higher lows. In an uptrend, we would look for higher highs in prices and lower highs reading on the CCI indicator.

How to Read ADX Indicator? – Understanding the Power of The ADX Indicator

Use trending indicators or other technical analysis methods to confirm signals indicated by the CCI. The strategies and indicators are not without pitfalls, and adjusting strategy criteria and the indicator period may provide better performance. This means you should get familiar with the CCI’s historical movement before looking for overbought and oversold signals.

The moving average is the average of the typical prices over the time period chosen. Stock technical indicators are calculated by applying certain formula to stock prices and volume tradingview screener data. They are used to alert on the need to study stock price action with greater detail, confirm other technical indicators’ signals or predict future stock prices direction.