Such strategies aren’t viable nowadays due to the markets’ complexity. The case is no different with the CCI, so make sure to complement it with other indicators. For example, when the CCI surpasses +100 and then gets back below it, traders open sell positions.

• Chartists must shorten the timeframe to look for signals based on the shorter trend.
• The Charlson Comorbidity Index assesses comorbidity level by taking into account both the number and severity of 19 pre-defined comorbid conditions.
• If the conditions are not clear enough, they add the moving average or MACD, to identify the prevailing trend.

The Commodity Channel Index is calculated by determining the difference between the mean price of a security and the average of the means over the period chosen. This difference is compared to the average difference over the time period. Comparing the differences of the averages allows for the commodities volatility.

CCI Trading Strategies

However, I recommend testing the tool with the period of 20 first to try the basic CCI strategy. As with all technical indicators, it is not always necessary to know how the CCI indicator is calculated. Most traders who use it don’t have any idea about how it is derived. Although this can be said for practically every technical indicator, we can’t miss highlighting its importance here, as well. Often, beginners learn one or two indicators and try trading solely on them.

Firstly, the technical analyst must choose the number of periods the CCI should analyze — with 20 being a common choice. As a general rule, fewer periods equate to an indicator with more extreme volatility, whereas more extended periods lead to a smoother and less volatile indicator. In both of these scenarios, traders may start looking for long or short opportunities. For example, if the CCI surges from levels below zero to those above 100, a new uptrend may be underway. Conversely, if the CCI goes from levels above zero to below -100, a fresh downtrend may be underway.

From oversold levels, a buy signal might be given when the CCI moves back above −100. From overbought levels, a sell signal might be given when the CCI moved back below +100. The figure above shows three buy signals on the daily chart and two sell signals. No short trades are initiated, since the CCI on the long-term chart shows an uptrend.

What is The Best Signal Offered by The CCI Indicator?

This way of determining overbought and oversold levels is called a Reversal Strategy. Finally, let us look at the gold futures chart GC, timeframe M5. To determine the overall global trend, you can use a simple moving average with a period of 200. A sign of a trend change will be the closing of the trading day below/above this moving average.

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.

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When the https://forexaggregator.com/ 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. However, a few days later, on May 27, the Commodity Channel Index generates one more signal to buy; this time, it yields a profit. The market provides two trading signals to buy USCrude oil.

The blue vertical lines mark the moments when the CCI indicator line crossed the 0 level downside. Therefore, after the formation of this signal at the close of the trading day, the trader should open a sell position. 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 content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary. Therefore, as with most momentum based oscillators, divergence between price and the indicator’s reading should not be ignored.

The https://trading-market.org/ also has levels +100, +200, and -100, -200, they are used to define the price momentum, as well as the overbought or oversold condition of the market. A divergence happens when the price of an asset is going in the opposite direction as the indicator. For example, a stock may be rising while the oscillator is falling. When this happens, it is usually a signal that a reversal is about to happen.

CCI balances the the current price relative to the average price over a lookback period. Typical prices mean absolute deviation or average deviation calculation. CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Credit Financier Invest International Limited provides general information that does not take into account your objectives, financial situation or needs.

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The index is upgraded monthly after surveying households and understanding their short-term economic plans, such as savings, expenditure, and unemployment patterns. Hence CCI is an important indicator as consumer spending dominates the GDP. Learn everything you wanted to know about the stochastic oscillator and how to use it in trading. Stochastic is a technical indicator of the type of oscillator.

The trade is entered the next day after the signal appears. Let us try to calculate the commodity channel index for the EUR/USD instrument manually at the trading day close on October 21, 2022. The reduction factor is also called the “Lambert constant”. Its value is constant and is designed to fit 2/3 of the absolute deviation values in the interval [-100, 100]. Entry points 2,3, and 4 provide a good opportunity to make profits. 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.

Thoughts on using the CCI to trade futures from actual traders

In a normal downtrend, the CCI indicator will oscillate between the 100 level and -100 level as shown in figure 18. 3- Buy signal is generated when breaking out level -100 as shown in figure 11. A way of estimating the reliability of a scale in which individuals are administered the same scale on two different occasions and then the two scores are assessed for consistency. This method of evaluating reliability is appropriate only if the phenomenon that the scale measures is known to be stable over the interval between assessments.

Information available on this website is solely for educational purpose only. The advice, suggestion and guidance provided through the blogs are based on the research and personal views of the experts. Please do your own research before making your investment decision. The 0.015 constant ensures 70 to 80 percent of CCI values fall within the +100 to -100 range.

• Thus, based on the above example, one could make a profit from four trades entered based on the CCI signals to identify overbought and oversold areas.
• A CCI plunge below -100 reflects a pullback within a bigger uptrend.
• Similarly, bullish and bearish divergences can be used to detect early momentum shifts and anticipate trend reversals.
• In this respect, it is similar to bollinger bands, but is presented as an indicator rather than as overbought/oversold levels.

This tutorial has an educational and informational purpose and doesn’t constitute any type of trading or investment advice. All content, including spreadsheet calculations and data, is presented for personal educational use exclusively and with no guarantee of exactness of completeness. It occurs when the price makes a lower low but the indicator makes a higher low, which means the current seller is exhausted and loses momentum and a correction might occur. In a strong uptrend, the CCI indicator will oscillate between the 100 level and zero level as shown in figure 3. 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.

What I https://forexarena.net/tled on was using the SLOPE function in Excel to ascertain if the trend of the typical price was up or down. The lookback period is the same as the CCI indicator period, but there are much fewer whipsaws than with the moving average. Technical Indicators is a mathematical formula calculated from price data to provide traders with some information that cannot be easily shown from pure prices like momentum and volatility. Indicators have two major classifications trend-following Moving averages and Bollinger Band and Oscillators like Commodity Channel Index and Stochastics.