That more or less sums up everything I could glean from the CCI indicator calculation. Also, as you might have gathered by the name, it is rarely, if ever, changed. Changing the constant and changing the upper and lower limits would accomplish the same thing. You usually won’t see it changed if you use any sort of service that provides you with CCI data. Copyright © 2025 FactSet Research Systems Inc.© 2025 TradingView, Inc.
Is the CCI Indicator Accurate?
The Commodity Channel Index is a momentum oscillator that helps determine when the traded asset reaches an overbought or oversold state. Traders also use it to better assess the direction and the strength of a trend and spot reversals and extremes. The Commodity Channel Index (CCI) is a technical indicator that measures the current price level relative to an average price level over a given period of time. The Schaff Trend Cycle (STC) is a charting indicator thatis commonly used to identify market trends and provide buyand sell signals to traders.
- Traders should use the CCI in conjunction with other indicators to improve the overall effectiveness of their analysis.
- Correspondingly, the CCI Amt Chg increased with the typical price too.
- This setting is ideal if you’re less concerned with short-term volatility and more focused on capturing large, trend-driven moves.
- If you would have taken the first signal the first time the CCI indicator reached the -200 level, you would have lost money.
- When you increase the accelerator, you put some effort (the engines begin to draw more gas, and the pistons drive the machine).
CCI’s calculation produces positive and negative values that oscillate above and below a Zero Line. Typically a value of 100 is identified as overbought and a reading of -100 is identified as being oversold. HowToTrade.com helps traders of all levels learn how to trade the financial markets.
Overbought & Oversold Crypto – Testing a CCI Strategy
Entering without confirmation Wait for price action to confirm CCI signals before pulling the trigger. Ignoring the broader market context A bullish CCI signal in a strong downtrend is likely to fail. One of the most overlooked aspects of CCI trading is proper settings optimization.
Applying effective risk management techniques and practicing sound trading discipline are crucial factors behind trading success. Traders can draw a trendline on the CCI indicator just as they do on the price chart. CCI signals a change in the direction of the trend whenever it breaks a trendline in the direction opposite to the established trend.
Typical price
A common way to trade with CCI is to identify potential market reversal zones. CCI signals potential overbought and oversold zones whenever it crosses +100 and -100 levels. Traders believe Cci indicator that the price will return to its mean and look for buying and selling opportunities whenever the CCI crosses its extreme levels.
Back to the CCI indicator calculation
What many do not know is that indicators such as the cci index can behave completely different to changing market conditions. Therefore, using them in a standard way will not result in optimal results. If the retrace was weak, it means the dominant energy of the market remains up. The CCI indicator strategy reflects quite well what is happening behind the scene where the actual buying and selling pressure takes place.
Keltner Channels are a trend following indicator used to identify reversals with channel breakouts andchannel direction. Channels can also be used to identify overbought and oversold levels when the trendis flat. RSI primarily measures the speed and change of price movements, while CCI focuses on deviation from the average price. Many traders use both to get a more balanced view of market conditions.
If we should highlight one thing the CCI indicator is best at, it is identifying the strength of the upcoming event. If you set the period to less than 14, the line will get more reactive. Alternatively, it will be more sensitive to price information and fluctuate way more between the boundaries without breaking the lines for too long on either side of the spectrum. Or, in other words, whether the price is below or above its average for the particular period and by how much.
- The theory is that these breakouts confirm strong trending momentum.
- Over 20 years of testing, it produced a return of 1180% versus a buy-and-hold strategy profit of 555%.
- Generally, when momentum in price is strong, you can expect a deviation from the mean price.
- Finally, there’s the average deviation from ## period simple moving average of the typical price.
- The formula’s sound analytical basis also adds credibility to its use.
Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). The best way to succeed is to use a CCI-50 on a daily chart for higher reliability. To test the Commodity Channel Index on the 500 largest US stocks in the S&P 500, I used the excellent backtesting solution provided by FinViz Elite. Finviz’s point-and-click backtesting engine allowed me to test the Commodity Channel Index-50 on a daily chart over the previous 20 years. But more importantly, overall, the strategy significantly beat the S&P 500 over 20 years because the profits of the winning trades outnumbered the losses of the losing trades.
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Identifying overbought oroversold extremes comes naturally to the Rate-of-Change oscillator. Lambert originally developed CCI to identify cyclical turns in commodities, but the indicator can be successfully applied to indices, ETFs, stocks, and other securities. In general, CCI measures the current price level relative to an average price level over a given period. CCI is relatively high when prices are far above their average, but is relatively low when prices are far below their average. In this manner, CCI can be used to identify overbought and oversold levels. For assets with high intraday swings (like crypto or small-cap stocks), a 10-period CCI on a 5-minute chart works best to catch momentum bursts.
Most platforms use a 14-period CCI, which works well for general market analysis. It reacts quickly to price changes but may give false signals in volatile conditions. Yes, the Commodity Channel Index is one of the best indicators for trading.
CCI divergence occurs when the direction of the stock’s price is different from the CCI indicator. Meaning, the stock is making a higher high and higher low while the CCI is making lower highs. Similarly, when the stock is making a lower high and lower lows while the CCI is making higher lows signals a bullish divergence in that particular stock. This piece of information can help a trader spot potential trend reversals in the market.
Its flexibility allows traders to fine-tune CCI-based strategies by adjusting CCI parameters. For example, traders change the number of periods used in the calculation of the CCI and the rules for entry and exit according to different market situations. Aside from identifying the overbought and oversold conditions (OB/OS), you can also use the CCI in fx trading to measure the strength of the trend. Alternately, forex traders also use the cci indicator to warn about extreme market conditions (when trends are the strongest or weakest).