CCI Trading Strategies

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The CCI (Commodity Channel Index) was developed in 1980 by Donald Lambert. This indicator is an oscillator that helps to identify market periods of overbought or oversold, like most indicators in this category.

This is a linear oscillator that sounds like it, but it has its own characteristics and advantages.

The Basics and Features of CCI

The CCI indicator shows when the current price level is well above or below the moving average. The moving average period is set by the trader.

The stronger the price deviation in the short term relative to its average value, the higher (in case of an uptrend) or lower (a downtrend) the oscillator line will go from zero point.

Most of the time, the indicator line oscillates between the +100 and -100 levels. When the line breaks out of this range, you receive a signal that the asset is either overbought or oversold.

This is a basic signal of the Commodity Channel Index.

CCI, unlike RSI or Stochastic Oscillator, is not limited by levels +100 and -100.

The Commodity Channel Index line may fall to the -200 and -300 levels, which will only indicate that the downtrend is very strong and that the market is in a deep oversold state.

Overbought/Oversold Signal

Overbought and oversold are the basic oscillator signals relevant to the CCI as well. Orders are opened with these signals as follows:

  • When the CCI indicator line crosses the +100 level from below, then reverses and crosses it in the opposite direction, a sell order is opened.
  • When the indicator line falls below the -100 level and then crosses it in the opposite direction, a buy signal appears.

It is worth noting that such signals appear quite often and many of them turn out to be false in the end.

It is better to add an additional indicator to the system or increase the normal swing range to filter out false signals.

Overbought / oversold levels can be moved to + 150 / -150 or + 200 / -200 for this matter.

Convergence/Divergence Indicators

Divergence is considered to be one of the strongest oscillator signals.

Explicit divergences and convergences form much less frequently than simply entering overbought and oversold zones, and therefore produce a more reliable signal.

Convergence and divergence can be identified by drawing lines through two or more local extremes on the chart and the respective extremes of the local indicator.

When the trend line on the price chart and the trend line on the indicator move in opposite directions, there is a high probability that the trend will change.

Convergence and divergence orders are opened as follows:

  • When at the moment of an uptrend the last local maximum is higher than the previous one (the line connecting them goes up) and the last extreme of the local indicator is lower than the previous one (the line goes down), a sell order is opened.
  • When at the time of a downtrend the last low is lower than the previous one and the last low of the indicator is higher than the previous one, a buy order is opened.

You can also exit orders with the signals of the commodity channel index when the line crosses the indicator in the opposite range.

Each order must be protected with a (set at a local endpoint or key price level).

CCI Advantages and Disadvantages

The Commodity Channels Index is a reliable and effective indicator, but it also has its downsides.

More specifically, it is good for identifying market entry points (especially in conjunction with other indicators), but it is better to use traditional signals to close positions.

The point is that when there is a strong trend, the CCI moves fairly quickly from the overbought zone to the oversold zone and vice versa, and if this is perceived as a reversal signal, most of the gains from the original position It is possible to lose.

All in all, CCI is a good “team player” showing good results in conjunction with other indicators.

However, it is not a good idea to open orders using only signals from The Commodity Channel Index, because CCI, like most oscillators, is primarily a filter created to remove false signals from other indicators.

About the author

Nafees Saifi // entrepreneur, author, trainer, and stocks and FX trader. 
Nafees Saifi is a professional FX trader from, India. Nafees has extensive experience trading commodities, bonds, and equity futures in the Asian, European, and US markets. Nafees holds a Bachelor of Finance and Economics degree and is focused heavily on Investment Finance and Quantitative Analysis.


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