Creator Donald Lambert himself recommended using the daily timeframe for analysis. 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. The indicator is more suitable for working in the sideways channel, that is when there is no pronounced trend on the market, and the price is within a narrow range.
Does a higher CCI always mean overbought?
- It responds quickly to daily price changes, making it an ideal indicator for medium-term trading strategies.
- Technical analysis is only one approach to analyzing stocks.
- 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.
- 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.
The black boxes highlight the points to enter a trade in the correction, based on the CCI signals covered above. When the CCI moved below level -200 and then goes back, a buy position is opened. As soon as the index crossed the 0 line from the bottom up, and the trading day closed the price with a gain, the market continued to grow. In the chart below, red vertical lines mark the days when the signals to buy in the USDCHF uptrend emerged. The chart below displays the CCI signals to trade the EURUSD downtrend.
This means that the likelihood of an early trend reversal grows even more. And thanks to this, the number of trading signals will increase. Therefore, you need to configure the CCI settings according to your trading style or use additional indicators as additional filters. Visually, it is a separate scale, which is located under the graph like all classic oscillators.
- Normal oscillations will occur within the range of +100 and −100.
- It can rise to whichever height the markets will take it, or drop down as low as the markets will take it.
- A bearish divergence can be confirmed with a break below zero in CCI or a support break on the price chart.
- In this guide, you’ll learn how to use CCI for stock trading, including how to read signals, spot trends, and combine it with other tools for better accuracy.
The Complete Guide To The CCI Indicator
The Commodity Channel Index (CCI) is a popular oscillator in the market. 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.
The Key CCI Levels: +100, -100, and 0
In this guide, we’ll cover everything you need to know about the CCI indicator, from what it is and how it works, to how you can use it to improve your trading. Add the indicator to your chart and draw horizontal lines at +100 and -100 for visual cues. You can customize the period directly on your chart platform without touching the underlying formula.
The proven way to trade the CCI indicator is to buy when it moves above -100 after dipping below it and sell when it moves back below +100 after rising above it. All price trading ranges are flexible, but the CCI is designed to take advantage of prices that have exceeded normal movements and are likely to snap back. Traders might look to sell their holdings or covered calls when the CCI is very high or make an additional purchase when the CCI is very low. Since it was invented, the CCI calculation has been added as an indicator to many charting applications, eliminating the need (thankfully) to do the calculations manually. Most of these charting applications simply require you to input the time interval that you would like to use. Here we can see that one cycle (from high to high) starts on Sept. 11 and finishes on Jan. 29.
The Best CCI Indicator Settings
Also, pay attention to the CCI moving very strongly against your position, or diverging – these are warning signs to consider getting out. In this article, we’ll look at the CCI, how the indicator works, what CCI signals are often interpreted to mean, and some common ways it’s used in market analysis. Both are momentum indicators, but CCI has no fixed boundaries and reacts more sharply to price changes. RSI stays between 0 and 100, while CCI can go beyond +100 or -100. TrendSpider is by far the top software for trading and backtesting Commodity Channel Index; with point-and-click backtesting requiring no coding, it’s a game-changer! TradingView is also good, offing pine code backtesting and global stock exchange, crypto, and forex coverage.
A bearish divergence forms when the security records a higher high and CCI forms a lower high, which shows less upside momentum. Before getting too excited about divergences as great reversal indicators, note that divergences can be misleading in a strong trend. A strong uptrend can show numerous bearish divergences before a top actually materializes. Conversely, bullish divergences often appear in extended downtrends. CCI and RSI are both oscillators that can help you identify overbought and oversold levels and divergencies.
It is able to work more precisely on the daily and hourly charts, as it was created specifically for such higher timeframes initially, and therefore took into account their features. However, just like the rest of the oscillators, the CCI can be used for medium or long-term analysis. The strongest signals from the indicator appear when divergences form between the price charts and the signal line of the indicator. 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 Cci indicator areas. A stop loss is always set according to the Price Action pattern rules.
Like most oscillators, the CCI indicator ranges from minus 100 to positive 100. It also has a zero line, which is very important to traders. The CCI’s zero line has several roles for traders and investors. The author himself recommends using it in periods of 60 and 20 days.
When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with. Comparing the differences of the averages allows for the commodities volatility. The result is multiplied by a constant to ensure that most values fall within the standard range of +/- 100. Obviously, a 20-day CCI is not suited for long-term signals; chartists should use weekly or monthly charts for those.
In this case, traders should look at other indicators, continue with the current trend, or wait for a breakout. Breakouts occur when the value is above +100, which indicates an overbought asset, or below -100, which indicates an oversold asset. The Commodity channel index (CCI) is a momentum oscillating indicator that primarily helps traders identify overbought and oversold areas.
If you know this, then you can gain an edge when trying to anticipate future price movements. The advantage of such popular indicators is their availability. The Commodity Channel Index does not need to be downloaded or installed additionally.
Tips for Using CCI in Stock Markets
Stocks often experience cycles of accumulation, breakout, consolidation, and reversal. The CCI helps identify these moments by measuring how far the price deviates from its average. Unlike some indicators with fixed boundaries, the CCI is unbounded. This allows it to capture both mild and extreme price movements.