The Commodity Channel Index and the Stochastic Oscillator are both momentum oscillators used to identify overbought and oversold scenarios in a stock. The Commodity Channel Index does not have predetermined threshold levels like the RSI. The readings above or below +100 and -100 is not be suitable for all assets and trading time frames. The Commodity Channel Index is used in conjunction with different technical tools such as the RSI, Moving Average, Bollinger Bands, Fibonacci Retracement, etc.
Long-Term Trading (50+ Periods)
Tamta is a content writer based in Georgia with five years of experience covering global financial and crypto markets for news outlets, blockchain companies, and crypto businesses. Tamta’s writing is both professional and relatable, ensuring her readers gain valuable insight and knowledge. Overtrading is a phenomenon where a trader executes too many transactions in the market, surpassing their strategy and trading more frequently than planned.
In this case, notice how the CCI indicator falls Cci indicator below -100 and stays there. In the first instance, price attempts to rally to the range high. But notice the falling momentum as the CCI indicator turns back below +100.
- However, you should also use additional analysis tools to watch for signs of trend exhaustion or reversals.
- 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).
- 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.
- Is it possible for a single technical indicator to more than double the returns of a traditional buy-and-hold strategy?
How I Backtested CCI
- At its core, the CCI measures how far the current price has moved from its statistical average.
- It isn’t the superstar that will single-handedly make you an undisputed trading wizard but will contribute significantly to your well-oiled trading machine.
- The CCI indicator oscillates between fixed levels of +100 and -100.
From the part of the chart colored by the green square, it’s possible to see that a bullish candlestick appears yet the CCI remains in the oversold zone. 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. Below are listed the most common combinations of CCI with different indicators.
Real CCI Trade Example: GBP/USD Analysis
It was initially developed for analyzing commodity markets but has since become popular across various financial instruments, including forex. The CCI Indicator helps traders identify overbought and oversold conditions, as well as potential trend reversals. The Commodity Channel Index (CCI) is a powerful technical analysis tool that helps traders accurately spot momentum shifts. It measures the difference between an asset’s current price and its historical average price.
Pros and cons of the CCI indicator
If it drops below -100, it could be oversold and ready to bounce. You might sell when CCI falls below +100 after a strong run or buy when it rises above -100 from a low point. I have shown the Commodity Channel Index is a proven successful tool for traders looking to enhance their trading strategies. Its accuracy and ability to produce strong signals can make it a valuable addition to any investor’s toolkit. I have researched and tested many technical analysis indicators, and many indicators, such as parabolic SAR and moving averages, underperform.
Traders can use the CCI indicator to trade different market types like stocks, forex, commodities etc. Initially, the CCI was introduced for the commodities market but over the years it has proven its efficiency across all the market types. Traders should always remember that the effectiveness of combining technical tools together depends on a trader’s skill and experience. Traders should not overload their charts with multiple indicators as it will lead to confusion. Instead, traders should focus on 2-3 effective indicators that compliment each other.
Conversely, the more periods used to calculate the CCI, the higher the percentage of values between +100 and −100. Using price action along with CCI can form the basis of a profitable trading strategy. I will also show the original trade using the trend change method and the pullback trading strategy. 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.
CCI Divergence Signals
All in all, the CCI indicator can undoubtedly help you find accurate trading signals. It is an excellent supportive indicator that can help improve your trading performance. You’ll have to learn how to use it properly, set the correct settings for the instrument you are trading on, and combine it with other technical indicators. The Commodity Channel Index (CCI) Indicator is overbought/oversold conditions and potential trend reversals.
Particularly situations where one number (period) can impact an average drastically. Now, we’re going to compare the past 5 day’s typical price to this average. We want the absolute value of the difference (e.g. “-4.00” would just be “4.00”). No fancy-schmancy moving averages here (e.g. exponential, smoothed, linear weighted, etc).
CCI Indicator for MT4 (Chart Settings Guide PDF)
±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. Lambert’s trading guidelines for the CCI focused on movements above +100 and below −100 to generate buy and sell signals. 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.
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Yes, the Commodity Channel Index is one of the most reliable and accurate technical analysis indicators. Based on our thorough backtesting of the S&P 500 stocks across 20 years, CCI outperformed the market by 580%. 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.