Traders use the CCI indicator to identify potential overbought and oversold conditions. A reading above +100 is considered overbought, while a reading below -100 is considered oversold. The CCI indicator measures how far the current price is from its average price over a set period.

Some common alternate uses for the cci indicator include identifying overbought and oversold levels, spotting trend reversals, Cci indicator and measuring market momentum. The cci indicator is a technical analysis tool that measures the strength of a market trend. It is based on the concept of momentum, and is used to identify whether a market is overbought or oversold. The Commodity Channel Index (CCI) indicates uptrends and downtrends by measuring the current market price level relative to an average price level.

Is the CCI Indicator Accurate?

However, it can give early signals when used with divergence or price patterns. This calculation creates a line that oscillates above and below zero. Donald Lambert, the creator of the CCI, chose 0.015 as a scaling factor to ensure that roughly 70% to 80% of CCI values fall between +100 and -100. This helps traders recognize extreme price moves more easily. Lambert chose the 0.015 constant to keep about 70 to 80% of CCI values between +100 and -100, making these levels useful as overbought/oversold signals. No, the Commodity Channel Index is different from a moving average.

Three most effective trading indicators for Forex traders

The blue vertical lines mark the moments when the CCI indicator line crossed the 0 level downside. Therefore, after the formation of this signal at the close of the trading day, the trader should open a sell position. 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. While the CCI indicator can be useful in identifying potential trend changes, it is important to remember that it is only one tool in an investor’s toolbox. As with any indicator, it should not be used alone but rather in conjunction with other technical indicators and fundamental analysis.

That could be a significant challenge in trading assets with the CCI indicator. However, once you find that value, the CCI could be an extremely useful tool. As you can see in the image above, the CCI indicator indeed, most of the time, stays inside a range between -100 to +100. Yet, it does not mean that these areas should indicate that a reversal is likely to occur. Instead, very often, traders use the breakout below or above the 100 value to join an existing trend and exit a position at around 150 to 200. That is, in many opinions, the ideal trading strategy for using the CCI indicator.

• As such, they typically search for minor trends in the market and use the CCI to identify a trend in the market rather than a reversal.
• While the RSI indicator scored an impressive 87.11% win rate in recent testing, the Commodity Channel Index (CCI) only reached 35.69%.
• If the price, for example, exceeded the level of +200, then this signals a state of very strong overbought.
• In this guide, you’ll learn how to read the CCI indicator, interpret its signals, and apply it to different trading scenarios with clarity and confidence.
• You can use to trade all assets, including stocks, currencies, and exchange-traded bonds.
• The Woodies CCI indicator is a trading system based on two classic CCI indicators with different periods.

On the first sheet of the template, called “Data”, the trader needs to specify the High, Low, and Close prices. For convenience, I recommend that you also fill in the “Date” and “Open” columns with the corresponding date of the trading day and the opening price. 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. Lambert also used a daily timeframe as the primary one to spot the entry signals of the indicator.

When the short term moving average (20) is above the long term moving average (50), it signals an uptrend. The Commodity Channel Index (CCI) is a popular oscillator that was created by Donald Lambert. As the name suggests, his goal was to create an indicator to identify extremes in the commodity market. Over the years, the CCI indicator moves from his original purpose and today it can be used to trade all types of financial assets like crypto and stocks.

The Best CCI Indicator Settings

Currently, traders also apply shorter CCI periods to trading more volatile assets than commodities. The Commodity Channel Index could be used as an independent trading system or as an oscillator to supplement the trading strategy. Everything depends on your investment objectives and trading skills. You can change the indicator settings, such as the period, according to your needs. However, I recommend testing the tool with the period of 20 first to try the basic CCI strategy. The cci indicator can be used in conjunction with other technical indicators, such as support and resistance levels, to generate trading signals.

Why Use CCI for Stock Trading?

For example, day traders often use it with a 5 or 10-period setting, while swing traders may prefer 20 or 50. Therefore, as with most momentum based oscillators, divergence between price and the indicator’s reading should not be ignored. Divergences between CCI and price action can be a signal that changes in trend may be forthcoming. I have researched and tested many technical analysis indicators, and many, such as the parabolic SAR and moving averages, have underperformed.

In this manner, CCI can be used to identify overbought and oversold levels. The CCI indicator or the commodity channel index indicator, as we have just learned is an oscillator. The CCI indicator oscillates between fixed levels of +100 and -100.

What indicators are better than Commodity Channel Index?

The CCI signals for trend trading appear when the CCI indicator line crosses level 0. Based on the trend direction, you should expect the indicator line to break through the zero level, either upside or downside. To trade a CCI strategy in a strong uptrend, you should expect the indicator line to break the zero line upside and enter a buy trade.

• It may also signal that the market is overbought, especially if the trend is mature.
• Finally, another way to use the Commodity Channel Index indicator is to follow the zero line.
• When the CCI indicator starts to rise back above -100, the bullish trend resumes, thus giving traders a good level to enter the trend.
• Determines what data from each bar will be used in calculations.

RSI simply measures the speed and change of price movements in the market. Numbers mark strong overbought and oversold levels of +200 and -200. The cci indicator is a versatile tool that can be used for a variety of purposes.

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.