Plunges below -100 reflect weak price action that can signal the start of a downtrend. The figures above use a weekly long-term and daily short-term chart. Other combinations can be used to suit your needs, such as a daily and hourly chart or a 15-minute and one-minute chart. If you’re getting too many or too few trade signals, adjust the period of the CCI to see if this corrects the issue. Entry and exit rules on the shorter timeframe can also be adjusted. For example, if the longer-term trend is up, you may allow the CCI on the shorter-term chart to dip below -100 and then rally back above zero (instead of -100)before buying.
You can also set a take profit at a strong resistance or support level. Another option to exit a trade is when the CCI indicator reaches level +100 or -100, depending on the trade direction . An entry signal here is the Pinbar price action pattern that appears when the second high forms. Next, you can see the price values fall, and the bearish movement continues for a few days. Some traders also apply levels +300 and -300, but the indicator can reach these levels only provided the period is shortened, or the market is highly volatile.
The Keltner Channel or KC is a technical indicator that consists of volatility-based bands set above and below a moving average. As with most technical indicators, the CCI should be used in conjunction with other forms of technical analysis. From overbought levels, a decline below +100 and a trend line breakis considered bearish. From oversold levels, a buy signal might be given when the CCI moves back above -100.
In general, CCI measures the current price level relative to an average price level over a given period of time. CCI is relatively high when prices are far above their average, but is relatively low when prices are far below their average. In this manner, CCI can be used to identify overbought and oversold levels. The Commodity Channel Index, or CCI, is a technical indicator that was developed to identify market trends.
Volume Weighted Average Price (VWAP)
The CCI line will move quickly from level to level when the period is small and it will move smoothly, oscillating mostly around the zero point, when the period is large. Standard Deviation is a simple moving average plotted not by typical prices, but by value (Typical Price – SMA). That is, first you need to subtract a simple moving average value from the typical price value, and then average the obtained value by the SMA formula once again. Next, you calculate a simple moving average of the typical price for the number of periods specified. The CCI can be adjusted to the timeframe of the market traded on by changing the averaging period.
It must be noted that when the CCI moves into the overbought and oversold levels, it is not a signal by itself. A specific entry point is identified using supplementary tools, for example, Price Action patterns. 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. Traders like the CCI commodity channel index because it is a versatile indicator that is relatively easy to interpret. The blue vertical lines mark the moments when the CCI indicator line crossed the 0 level downside.
The price bars can be one-minute, five-minute, daily, weekly, monthly, or any timeframe you have accessible on your charts. When the CCI moves from negative or near-zero territory to above 100, that may indicate the price is starting a new uptrend. Once this occurs, traders can watch for a pullback in price followed by a rally in both price and the CCI to signal a buying opportunity. Calculate the mean deviation by subtracting the MA from the typical price for the last 20 periods.
It can be used to generate trade signals based on overbought and oversold levels as well as divergences. Signals appear frequently, such a frequency can cause a trader to overtrade. It is also necessary to take into account important financial news, they can bring significant price fluctuations and changes in the technical analysis picture of the market. Therefore, I recommend starting intraday trading only after a detailed study of the CCI indicator and gaining experience in trading in longer timeframes. The Commodity Channel Index indicator is also suitable for intraday trading, like most technical analysis tools. In this case, the trader should switch to the M5 or M15 timeframe.
Some of the most common oscillators are the relative strength index , MACD, and the relative vigor index . Traders use the CCI to help identify price reversals, price extremes, and trend strength. Because about 70 to 80 percent of the CCI values are between +100 and -100, a buy or sell signal will only generate20 to 30 percent of the time. Commodity and historical index data provided by Pinnacle Data Corporation.
The percentage of CCI values that fall between +100 and -100 will depend on the number of periods used. Find the approximate amount of currency units to buy or sell so you can control your maximum risk per position. From basic trading terms to trading jargon, you can find the explanation for a long list of trading terms here. This strategy does not include a stop-loss, although it is recommended to have a built-in cap on risk to a certain extent. When buying, a stop-loss can be placed below the recent swing low; when shorting, a stop-loss can be placed above the recent swing high.
Best Forex Trading Indicators Every Trader Should Use
The Kairi Relative Index is a technical analysis indicator used to indicate potential buy and sell points based on overbought or oversold conditions. The CCI is primarily used for spotting new trends, watching for overbought and oversold levels, and spotting weakness in trends when the indicator diverges with price. 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.
How to use currency strength meter
You can use to trade all assets, including stocks, currencies, and exchange-traded bonds. To use it well, we recommend that you spend a substantial amount of time in a demo account and testing different scenarios. 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. This is an indication that you should never use the CCI alone.
The ROC indicator, which is also referred to as simply Momentum, is a pure momentum oscillator. The chart above uses 30 periods in the CCI calculation; since the chart is a monthly chart, each new calculation is based on the most recent 30 months. With proper use, you can find excellent entry points with a small Stop Loss and a large Take Profit. Based on the CCI indicator, you can create a full-fledged trading system. The CCI indicator is available in any popular trading platform, and if you need to calculate the indicator value manually, you can use an Excel spreadsheet. In the first case, the downward movement is limited and would not yield a reward-to-risk ratio of more than 3 for a trade.
As with most oscillators, divergences can also be applied to increase the robustness of signals. A positive divergence below −100 would increase the robustness of a signal based on a move back above −100. A negative divergence above +100 would increase the robustness of a signal based on a move back below +100.
Also notice that UPS filled the late June gap with a surge in early July. Third, a bearish divergence formed in early September and was confirmed when CCI dipped into negative territory. Despite a CCI confirmation, price never broke support and the divergence did not result in a trend reversal.