As with most technical indicators, the CCI should be used in conjunction with other forms of technical analysis. Horizontal lines at ±200 were added using the advanced indicators options. From early February to early October (2010), Google exceeded ±200 at least five times.
Additionally, the CCI indicator presents the overbought and oversold levels as well as potential price reversals. The most trustful Fibonacci percentages are considered to be 38.2 %, 50.0 %, and 61.8 %. The difference between RSI and commodity channel index CCI is that RSI is a momentum oscillator, expressed as a percentage, while CCI is expressed as a quantity. The RSI is mainly used to find overbought and oversold areas, as well as divergences, while the CCI can still be used to enter trades following the trend.
Apply a Commodity Channel Indicator (CCI)
A more aggressive use of the CCI indicator dictates entering positions when the index crosses the 0 line. When the CCI crosses above the 0 line from negative territory, this is a bullish signal. When the CCI crosses below the 0 line from positive territory, this is a bearish signal. As mentioned, the CCI indicator is an unbound indicator, meaning its values can go below -100 and above 100.
It would then be prudent to exit the trade once the CCI moves above +100 and then drops back below +100. Alternatively, if the trend on the longer-term CCI turns down, that indicates a sell signal to exit all long positions. The Commodity Channel Index (CCI) indicator measures an asset’s current price compared to the average price level established over a given period. It tracks the momentum of current price highs and lows relative to the statistical mean to determine the development of new trends in the market. It is very popular amongst traders to combine the Cci indicator with the Fibonacci Retracement since they are both advanced trading tools. The latter, commonly applied in the crypto market, helps investors to spot the most appropriate buying point.
CCI Oversold in Uptrend
When you are trading in a downtrend, wait until the indicator line breaks the zero level downside and enter a sell trade. The index looks like a curve that is located either above or below zero. The indicator 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. Next, you calculate a simple moving average of the typical price for the number of periods specified. While divergences reflect a change in momentum that can foreshadow a trend reversal, chartists should set a confirmation point for CCI or the price chart. A bearish divergence can be confirmed with a break below zero in CCI or a support break on the price chart.
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. 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. Like most other indicators, the CCI was developed with a focus on the commodities market. Still, it can now be used to identify trends and countertrends in other markets like ETFs and stocks.
How to Use CCI when Trading
This type of calculation can be useful for those traders who trade on a platform that can’t add the https://investmentsanalysis.info/ to the chart. Due to the typical price, you can have an idea about the market trend. If the current CCI measures are higher than the previous ones, the price is rising, and the trend is up. If the current price is lower than the previous one, the market is falling, and the trend is down. It should be noted that the idea that the market moves in cycles is not new.
Below, there is an example of trading the USDCAD based on the overbought and oversold levels. Like in the case described above, the Price Action buy and sell signals emerge a little later than the index reaches +200 and the negative territory of -200. I want to emphasize once again that a trader should identify the trend in longer timeframes (D1, W1) to trade based on the signals described above. The trend can be identified using general techniques, such as key highs and lows in the chart, or using other technical analysis tools. Unfortunately, the strategy is likely to produce multiple false signals or losing trades when conditions turn choppy.
How is CCI indicator different from MACD?
The MACD uses moving averages to calculate trend direction and momentum, while the CCI simply measures the deviation from the average price. As a result, the CCI can be used to identify overbought or oversold conditions at an earlier stage than the MACD.