A take profit is set at a distance of three times longer than the stop loss. You can also set a take profit at a strong resistance (for a purchase) or support (for a sale) level. Another option to exit a trade is when the CCI indicator reaches level +100 or -100, depending on the trade direction (buy or sell). The price chart makes a new high, higher than the previous one, while the CCI makes a lower high.

Chaikin Oscillator: What It Is, How It Works, and How to Use It in Trading

Divergence means a situation when the indicator and the price chart move in opposite directions. The arrows in the chart point to the Price Action patterns that provide entry points with a good reward/risk ratio. When the CCI moves up to the overbought zone, the uptrend might be exhausting, so there should be a correction, or the trend could reverse down. However, a few days later, on May 27, the Commodity Channel Index generates one more signal to buy; this time, it yields a profit. Let us try to calculate the commodity channel index for the EUR/USD instrument manually at the trading day close on October 21, 2022. Its value is constant and is designed to fit 2/3 of the absolute deviation values in the interval -100, 100.

• Traders like the CCI commodity channel index because it is a versatile indicator that is relatively easy to interpret.
• Below, there is an example of trading the USDCAD based on the overbought and oversold levels.
• The chart below shows United Parcel Service (UPS) with 40-day CCI.
• A number that is high shows that price is above its average and a number that is low means that the price is below its average.

CCI Indicator: What Is It, How to Use It & Trading Strategy Explained

Familiarity with any tool often leads to a more nuanced understanding of its application. To understand its application, it’s helpful to be familiar with its readings and common interpretations of its signals. However, it’s a widely held view in market analysis that no single indicator should be used in isolation. The Commodity Channel Index (CCI) works like a speedometer for market momentum.

Is the CCI Indicator Accurate?

For those unfamiliar with the term, divergence in trading is a situation of miscorrelation between the price of an asset and the indicator. Much like MACD divergence and RSI divergence, traders exploit this occurrence when they notice the CCI indicator and the price of the asset move in opposite directions. 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. Selection of overbought/oversold levels also depends on the volatility of the underlying security.

• The CCI trend indicator can be used to signal the strength of the trend.
• The CCI is a universal oscillator that equally demonstrates performance in the foreign exchange market, commodities, stocks, cryptocurrency, etc.
• CCI is relatively high when prices are far above their average, but is relatively low when prices are far below their average.
• Our in-depth Commodity Channel Index trading analysis relied on TrendSpider – the industry-leading trading tool for backtesting and strategy development.

Avoid CCI 20 on a 5-minute chart, as this has only a 13% win rate. The Commodity Channel Index can be combined with other technical indicators to form a more profitable trading strategy. For example, combining CCI with Cci indicator the Money Flow Index, Price Rate of Change, or bullish chart patterns could yield higher profits. This is double the return of a buy-and-hold strategy, making the CCI-50 one of the best indicators I tested.

How to Trade Stocks with the CCI

However, there won’t be a disaster if you enter a sell trade in such a situation; you will just face a small loss within your CCI trading system. In the above example of a pro’s trade, you see that the general oil trend is up; it started in April 2020. A bullish signal appears on November 9, 2020, when the CCI line crosse level 0 upside. Next, the price starts growing, which is a good buying opportunity.

By measuring these prices, the indicator helps to gauge whether the price is high or low relative to that historical level. Some of the most experienced forex traders are constantly learning new techniques to help improve their trading knowledge and skills. Today we will talk about another useful oscillator – the Commodity Channel Index – CCI indicator. The Commodity Channel Index was created back in the 1980s by the famous trader Donald Lambert.

Forex Levels Indicators

In trading with the CCI indicator, the overbought and oversold levels are +100 and -100, as well as +200 and -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. The fact that The Commodity Channel Index indicator has been in use now for over 30 years is a testament to the value placed on it within the technical analysis community. Time and time again it is demonstrated how important momentum is when analyzing the market and attempting to determine future moves. Whether you are using CCI to confirm trends or to look for reversals, its momentum quantifying prowess should not go unnoticed.

The best way to succeed is to use a CCI-50 on a daily chart for higher reliability. To test whether combining the Commodity Channel Index with other indicators is profitable, I suggest using TrendSpider, my recommended stock research and AI-powered trading software. Over 20 years, the Commodity Channel Index (CCI) yielded double the profits compared to a buy-and-hold strategy. Based on my tests, it is one of the best indicators available today. However, optimal settings and understanding how to trade CCI are crucial for success. The primary issue revolving around the CCI indicator is how to use it.

The cci indicator is a momentum oscillator that measures the strength of a stock’s recent price performance. The cci indicator can be used to identify overbought and oversold conditions, as well as to spot potential reversals. When the CCI is between these two levels, it indicates normal market conditions, which does not provide any signal to buy or sell.

It works well for those who want a simple tool to analyse market cycles and momentum. For short timeframes like 5 minutes, many traders reduce the period to 10 or lower to increase sensitivity. Some traders also look for crossovers through the +100 or -100 levels as potential entry or exit points. The typical price is the average of the high, low, and close for a given period. Many traders use both indicators together for a more complete picture of market conditions. These levels act as reference points to help interpret momentum.

Furthermore, this is just one example of the strategies available to traders with the right tools. A profitable indicator on a 1-minute chart is rare, which makes the CCI indicator profitable and very useful for day traders. Do you want to test any indicator, chart pattern, or performance for any US stock? My Trendspider review unveils insights into discovering the most powerful trading strategy development and testing service. Like any other momentum oscillator, the CCI is not designed to be used as a standalone tool. It may be more effective to complement this indicator with another technical tool, such as a price channel.

Combining CCI with Other Indicators

Other settings that can be used are +200 and -200 with a lookback period of 14. When the forex cci indicator rises above the standard +100 or falls below -100, it signals overbought and oversold levels in the market. It is one of the many standard indicators that are available by default, so you do not have to download any custom indicators. The Commodity Channel Index (CCI) is a widely used technical indicator that helps traders identify overbought and oversold conditions in financial markets. Introduced by Donald Lambert in 1980, the CCI indicator was originally designed for commodities. However, traders now use it across all asset classes, including stocks, forex, and cryptocurrencies.

CCI demonstrates both the classical oscillator signals and other signals that were laid down by its creator. The signal to buy in the commodity channel index CCI is the crossing of the zero line from the bottom up. Also, a buy signal may be the CCI signal line reaching the level of -200 and the formation of a bullish divergence between the price chart and the indicator chart. Trend indicators work well with the commodity channel index CCI, such as the simple Moving Average, as well as entry point indicators, such as Price Action.

CCI moved below -100 on January 22 (eight days later) to signal the start of an extended move. The stock bottomed on February 8 and CCI moved above +100 on February 17 (six days later) to signal the start of an extended advance. CCI doesn’t catch the exact top or bottom, but it can help filter out insignificant moves and focus on the larger trend. CCI measures the difference between a security’s price change and its average price change. High positive readings indicate that prices are well above their average—a show of strength. Low negative readings indicate that prices are well below their average—a show of weakness.