I would add additional technical, fundemental, price action and sentiment analysis to verify all CCI signals. 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. Some traders may have considered the stock overbought and the reward-to-risk ratio unfavorable at these levels.
- There are three sizable divergences over a seven-month period, which is actually quite a few for just seven months.
- The latter, commonly applied in the crypto market, helps investors to spot the most appropriate buying point.
- In general, when the CCI moves from negative or near-zero territory to surpass the +100 mark, it is considered an indication of the beginning of a strong new uptrend.
- And vice-versa, if it nose-dives below the -100, take it as a signal for a strong downward movement.
This would have told longer-term traders that a potential downtrend was underway. More active traders could have also used this as a short-sale signal. This chart demonstrates how in early 2012 a buy signal was triggered, and the long position stays open until the CCI moves below -100. It is a technical indicator that measures the difference between the current price and the historical average price.
CCI trading strategy no. 2
However, you will need to be patient to be able to place orders with this trading strategy. For example, when the price marks lower lows, while the CCI marks higher lows, we have a bullish divergence. On the other hand, if the price and the CCI both go up, but the price marks higher highs, while the CCI marks lower highs, we have a bearish divergence or a signal weakness.
When the indicator goes from positive or near-zero readings to below -100, then a downtrend may be starting. This is a signal to get out of longs or to start watching for shorting opportunities. In any case, we have found that the best signal offered by the CCI indicator is the divergence, like in many other cases. The best way to understand how CCI indicator works is by learning how it is calculated, as it will give us a better idea about how this indicator can help us in our trading.
What Are The Limitations of Using The CCI indicator?
Generally speaking, the RSI is considered a more reliable tool than the CCI for most markets, and many traders prefer its relative simplicity. Originally developed to spot cyclical trends in commodities, the CCI has become popular in equities and currencies as well. The CCI’s formula compares an asset’s typical price to its moving average and then divides those by the absolute value of its mean deviation from the typical price. High positive readings signal that the asset is trading more strongly than its past trend cycles predict that it should.
But this indicator can be used for analyzing and making decisions about other assets. Stockcharts.com, Freestockcharts.com, and trading platforms such as Thinkorswim and MetaTrader all provide the CCI indicator. When using CCI analysis, you can also develop your own analysis method by specifying the period range in the Inputs section.
- Or, in other words, whether the price is below or above its average for the particular period and by how much.
- The CCI’s formula compares an asset’s typical price to its moving average and then divides those by the absolute value of its mean deviation from the typical price.
- CCI moved below -100 on 22-January (8 days later) to signal the start of an extended move.
CFDs issued by IG Markets South Africa Limited are regulated by the Financial Markets Act, and IG Markets South Africa Limited is a licenced over-the-counter derivative provider. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider.
When the CCI ranges over the +100 mark, it is considered favorable for the bulls, while when moving below the -100 mark, it is viewed as a bear signal. High positive CCI values indicate that the current prices are above their average. Therefore, you need to configure the CCI settings according to your trading style or use additional indicators as additional filters.
CCI is a momentum indicator that shows whether a price trend is strong or weak. Watch and take a closer look at CCI so you can keep an eye on what’s going on. Specifically, the uptrend of the price is renewed whenever the CCI falls below -100. To be able to grasp the current trend, you need a reliable indicator to identify it.
The higher this number, the more decimal points will be on the indicator’s value. Bearish CCI Divergence occurs when price makes a higher high while CCI makes a lower high. Bullish CCI Divergence occurs when price makes a lower low while CCI makes a higher low. The CCI indicates when one of those cyclical reversals is imminent.
Divergence
The CCI indicator (Commodity Channel Index) is one of many oscillating trading indicators and many of them are pretty similar. The CCI indicator is good, but there are better, for example, the RSI indicator. The first three columns show the variables we put into the formula. This image above shows a CCI with the setting of 4, which is much lower than the standard setting of 14. Notice how many times the average line appears above and below the +100 and -100 lines, respectively. The time period to be used in calculating the SMA portion of the CCI (20 is the Default).
A bearish divergence can be confirmed with a break below zero in CCI or a support break on the price chart. Conversely, a bullish divergence can be confirmed with a break above zero in CCI or a resistance break on the price chart. Both oscillators are commonly used at the same time for more accurate and efficient trading results.
Best settings for the CCI indicator
As a coincident indicator, surges above +100 reflect strong price action that can signal the start of an uptrend. Plunges below -100 reflect weak price action that can signal the start of a downtrend. Parabolic SAR (PSAR) is an efficient lagging indicator that follows the price trend and is presented on the chart with dots over or under the price line.
Some online traders may even apply additional lines +/- 200, +/- 300 to the scale as well. If the price, for example, exceeded the level of +200, then this signals a state of very strong overbought. This means that the likelihood of an early trend reversal grows even https://bigbostrade.com/ more. The definition of overbought or oversold varies for the Commodity Channel Index (CCI). ±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.
With the bullish signal in force, the focus would have been on bullish setups with a good reward-to-risk ratio. Notice that the stock retraced around 62% of the prior advance and formed a falling flag by the end of June. The subsequent surge above the flag trend line provided another bullish signal with CCI still in bull mode. When the PSAR and the CCI are combined, they form an efficient tool for day trading.
Stay on top of upcoming market-moving events with our customisable economic calendar. Update it to the latest version or try another one for a safer, more comfortable and productive trading experience. In the Encyclopedia of Technical Market Indicators, Robert Colby suggested using Zero CCI. The point is that the CCI line has been in the zone between -100% and 100% for a reasonably long time, which makes it impossible to use the indicator for transactions opening. Some technical analysts and Lambert himself suggested interpreting the indicator differently.
Below are the most popular CCI strategies that are used by investors. On the chart that is demonstrated above the price of the asset is moving up where both the price and the PSAR are above the 20 EMA line. crude oil cfd While the asset’s price moves to lower levels a bullish reversal in the PSAR line is monitored at the same time. Additionally, the CCI remains over the +100 value, indicating an existing strong trend.