As you can see on the figure above, there are many oscillators that populate that list, and traders can even create new ones and import them as well. However, in the end, all oscillators are designed to show the same thing: any fake moves the price is making. As a rule of thumb, traders should always stay with the oscillator and not with the current price a currency pair is showing, as the oscillator is built to take into account a longer period.

Before plotting the CCI below a chart, one can choose the parameters the oscillator will consider, such as the period back in time.

In this case, the standard period is the 14, meaning the CCI will take into consideration the values of the last 14 candles. If the oscillator is attached to a monthly chart, then the values of the last 14 months will be considered before plotting it. Such an outcome is valid for all oscillators that have a longer period, or more candles, taken into account.

If we leave the 14 periods for the CCI oscillator and click the OK button, the oscillator will be plotted, and the chart will look like the image below. Before showing concrete strategies to trade with the CCI oscillator, a closer look at the indicator is needed. It means that the Commodity Channel Index travels into negative territory as well, and the zero level probably has some impact on trading too.

One way to use the CCI is to look for bullish and bearish divergences between the actual price and the oscillator. Such divergences are a great signal for trend reversals, and are widely used by traders. It is said that a divergence is forming when the price and the oscillator are showing two different things. A bullish divergence means that the price makes two consecutive lower lows, while the oscillator does not confirm the second low.

A bearish divergence, on the other hand, forms when the price makes two consecutive higher highs and the oscillator does not confirm the second one. Given the fact that the oscillator takes into account more candles in this case 14 candles, as 14 is the period chosen before plotting the oscillator , traders should always stay with the oscillator.

This means that when a bullish or a bearish divergence is forming, eyes should stay on what the oscillator is showing rather than on what the price is doing. The chart above shows a classical bearish divergence price forming with the CCI and, again, traders should stay with the oscillator. By the time the price forms the second higher high, the oscillator is not confirming it, and the second spike is actually lower.

This is the very definition of a bearish divergence. A bullish divergence will show exactly the same thing, only that the signal is a buying one. Another way to trade with the CCI is to look for overbought and oversold levels and to take a trade in the opposite direction.

However, we cannot consider the — and levels as being oversold or overbought, as a quick look at those levels shows us that the price is travelling way beyond them. The risk, therefore, is to be trapped in a wrong trade as the overbought and oversold areas are simply not defined properly. In order to do that, we need to right-click on the chart, choose the Indicators List tab, and edit the levels on the Commodity Channel Index oscillator.

However, you can use whatever levels you feel work better at identifying these kind of areas. The example above shows us four entries on the short side, while the price is only moving in a bullish trend. It means that using this strategy will suit scalpers more than swing traders. Entry and exit rules on the shorter timeframe can also be adjusted. For example, if the longer-term trend is up, you may allow the CCI on the shorter-term chart to dip below and then rally back above zero instead of before buying.

This will likely result in paying a higher price but offers more assurance that the short-term pullback is over and the longer-term trend is resuming. While this could mean holding through some small pullbacks, it may increase profits during a very strong trend.

The figures above use a weekly long-term and daily short-term chart. Other combinations can be used to suit your needs, such as a daily and hourly chart or a minute and one-minute chart. If you're getting too many or too few trade signals , adjust the period of the CCI to see if this corrects the issue. Unfortunately, the strategy is likely to produce multiple false signals or losing trades when conditions turn choppy.

It is quite possible that the CCI may fluctuate across a signal level, resulting in losses or unclear short-term direction. In such cases, trust the first signal as long as the longer-term chart confirms your entry direction. This strategy does not include a stop-loss , although it is recommended to have a built-in cap on risk to a certain extent. When buying, a stop-loss can be placed below the recent swing low ; when shorting, a stop-loss can be placed above the recent swing high. Ken Wood.

Traders Press, The CMT Association. Technical Analysis Basic Education. Technical Analysis. Advanced Technical Analysis Concepts. Company News Markets News Cryptocurrency News Personal Finance News Economic News Government News. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Table of Contents. How Traders Use CCI. Calculating CCI. Understanding CCI. Special Considerations. CCI Trading Strategy Basics. Multiple Timeframe CCI Strategy.

Alterations and Pitfalls of CCI Strategies. FinTech Automated Investing. More active traders could have also used this as a short-sale signal. This chart demonstrates how in early a buy signal was triggered, and the long position stays open until the CCI moves below The CCI can also be used on multiple timeframes.

A long-term chart is used to establish the dominant trend, while a short-term chart establishing pullbacks and entry points into that trend.

More active traders commonly use a multiple timeframe strategy, and one can even be used for day trading , as the "long term" and "short term" is relative to how long a trader wants their positions to last. The trend is considered up until the longer-term CCI dips below The figure above shows a weekly uptrend since early When using a daily chart as the shorter timeframe, traders often buy when the CCI dips below and then rallies back above Alternatively, if the trend on the longer-term CCI turns down, that indicates a sell signal to exit all long positions.

The figure above shows three buy signals on the daily chart and two sell signals. No short trades are initiated, since the CCI on the long-term chart shows an uptrend. When the CCI is below on the longer-term chart, only take short sale signals on the shorter-term chart. Traders would then exit the short trade once the CCI moves below and then rallies back above Alternatively, if the trend on the longer-term CCI turns up, exit all short positions. You can use CCI to adjust the strategy rules to make the strategy more stringent or lenient.

This reduces the number of signals but ensures the overall trend is strong. Entry and exit rules on the shorter timeframe can also be adjusted. For example, if the longer-term trend is up, you may allow the CCI on the shorter-term chart to dip below and then rally back above zero instead of before buying.

This will likely result in paying a higher price but offers more assurance that the short-term pullback is over and the longer-term trend is resuming. While this could mean holding through some small pullbacks, it may increase profits during a very strong trend. The figures above use a weekly long-term and daily short-term chart.

Other combinations can be used to suit your needs, such as a daily and hourly chart or a minute and one-minute chart. If you're getting too many or too few trade signals , adjust the period of the CCI to see if this corrects the issue.

Unfortunately, the strategy is likely to produce multiple false signals or losing trades when conditions turn choppy. It is quite possible that the CCI may fluctuate across a signal level, resulting in losses or unclear short-term direction. In such cases, trust the first signal as long as the longer-term chart confirms your entry direction.

This strategy does not include a stop-loss , although it is recommended to have a built-in cap on risk to a certain extent. When buying, a stop-loss can be placed below the recent swing low ; when shorting, a stop-loss can be placed above the recent swing high. Ken Wood. Traders Press, The CMT Association. Technical Analysis Basic Education. Technical Analysis.

The CCI Commodity channel index indicator measures the current price level to an average price over a given period. Developed by Donald Lambert, the CCI is a momentum oscillator that you can use to identify trend continuation and reversal.

It oscillates below and above the zero level. If the CCI signal line goes above or below this level, it indicates overbought and oversold levels. Lambert set the constant at. However, it depends on the period too. The length, by default, is set at You can set the higher period. The MA method is SMA , but you can change it to your preference. You can trade with the indicator using multiple ways; locating trend direction, finding overbought and oversold levels, and identifying divergences.

When this happens, you can take long positions or exit short ones. On the flip side, if the CCI moves below , it starts a downtrend. Here, you can enter short or exit long positions.

You have to remember that CCI is an unbound indicator, which means it has no upsides or downsides. You can also find divergences with the CCI. While divergence may not be a good trading signal with the CCI since it may continue for a long time and does not necessarily result in a price reversal , it can be useful for you to know about the upcoming reversal. Also, CCI and Stochastics may identify overbought and oversold levels differently because of their calculations.

It will draw real-time zones that show you where the price is likely to test in the future. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment.

F Forex Indicators Trading. Table of Contents Hide Formula Calculations Best settings for the CCI indicator How to trade with the CCI indicator? Advantages of the CCI indicator CCI vs Stochastics indicator Summary. learn more. Ali Muhammad. Leave a Reply Your email address will not be published.

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Advanced Technical Analysis Concepts. We also reference original research from other reputable publishers where appropriate. In this context, you can compare the price highs or lows to the CCI index values. This means that we can use the crossing of the zero line to gauge a shift in the market sentiment. The Commodity Channel Index CCI is an indicator used in the world of financial market analysts.

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