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Thread: How to use the CCI indicator in trading?

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    Smile How to use the CCI indicator in trading?

    What is the CCI indicator...?

    The CCI indicator is an oscillator that measures the strength behind a price movement. In its simplest form, it allows us to judge whether these forces are directed up or down. In this respect, the CCI Indicator has some similarities with the Momentum Indicator. The value of these indicators oscillates on either side of the "zero" line.

    As the main difference, the momentum indicator is limited in the 100-point range on either side of the "zero value", while the CCI can swing between highs and lows, although 100 and -100 are still key values.

    Like many indicators at the moment, the CCI compares the current price to a previous one, and from this comparison decides how strong or weak the market is in relative terms. The CCI uses a moving average as a reference point, against which the current price is measured.

    CCI is a relatively recent indicator that emerged after the advent of computing. Therefore, it was designed for electronic processing from the start, unlike many previous indicators that were originally calculated manually. Thus, the calculation method is a little more complicated than that used in previous indicators. Also, slight variations have been added to this method over the years.

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    The CCI Indicator Trading Strategy...

    If we look at how the CCI is calculated, its main function is to tell us how a pair's price change at any time compares with the average price.

    A high CCI indicates price is above average. The CCI rising to these levels indicates an increase in strength.

    A low CCI indicates price is below average. The decline in the CCI to these levels indicates further weakness.

    The trading rules suggested by Miller for his simple indicator...

    ️ If the CCI line reaches a value above +100, it is a signal for a buy position. It is advisable to close the position when the line crosses below +100.

    The same method is applied the other way, If the CCI line falls below the -100 level, then this is a sell signal, and therefore a short position opening is the most likely to happen. It is advised to close the short position when the CCI line rises above the -100 level.


    Goo Luck To All ...

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    How to use the CCI indicator in trading?


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    The CCI indicator literally translates as a commodity channel index. It allows you to predict future price fluctuations within the built range. The instrument performs best during lateral movement, but may indicate changes during directional movements. In order to use it as productively as possible, it is advisable to study the origin and method of application.

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    CCI indicator: description of the trading system


    This technical tool was created in the 80s of the 20th century by the successful trader Donald Lambert. The program looks like a line fluctuating between the +/- 200 marks. Its main purpose is to indicate bullish and bearish periods. Having determined an increase or decrease in prices, a trader will be able to get rich even during a flat.

    The software should be used to find the optimal entry points. It is advisable to pay attention to the intersection of the indicator line of the +/- 100 marks. The exact signal for placing orders is the crossing of level 100 in any direction. The technique was created a long time ago, and traders made a lot of adjustments to it. The initial meaning of the system has been changed, and the effectiveness of trading operations has increased.

    By correctly identifying the cycles, you can significantly increase your trading efficiency. This is exactly what the CCI indicator does, the settings of which should be set at a frequency of 6 and 12 days. The author advises using the daily scale, because it allows you to find a trend and analyze it. The larger the configured timeframe, the more smoothing occurs. Sell ​​or buy signals will be received less often, but their accuracy will increase.

    It is noteworthy that redrawing is permissible on too large a scale. This fact will significantly reduce the trading performance and provide the investor with false signals. Before entering the market, you should analyze the possible delay and take it into account in the trading strategy.

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    How the CCI indicator works


    The tool demonstrates a good result due to the connection between the rate of trend development and its strength. From the point of view of the CCI indicator, the market behavior strategy must take into account a huge amount of data, in addition to the signals to enter and exit. If a quote has been in the same price range for a long time, we can state a flat.

    When the indicator line repeatedly crosses the mark, spikes form on the chart visualization. Trades against the trend on this instrument bring losses, and therefore it is recommended to move exclusively in the direction of the given trend. If, during a reversal, the rate breaks the 100 mark and moves in the opposite direction, you should not reverse the rate. In most cases, the periods of corrections will be too short and will lead to losses rather than gains.

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    The CCI indicator is capable of giving several important signals:
    • Overbought or oversold is determined when the indicator line crossed the level of 100. The further the curve is from the critical values, the stronger the prevalence of the current market forces. In such cases, there is usually a signal that the trend is changing. Traders understand that an asset is undervalued or overvalued and change the price quote.
    • Divergence is formed when the indicator curve and the price quote diverge in different directions. The outlook for a trend formation does not coincide with the current state of affairs and this indicates an imminent reversal. When the trend weakens, it still continues to exist by inertia. Gradually, his strength is depleted and a completely different trend begins. In this case, not only the opposite movement can form, but also a sideways movement.

    Though trading on financial markets involves high risk, it can still generate extra income in case you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.

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    The Commodity Channel Index (CCI)



    The Commodity Channel Index is an oscillator used in technical analysis . It is used mainly in assets that have a seasonal or cyclical behavior, such as raw materials. It was created by Donald Lambert and is known by its acronym CCI .

    The translation of the oscillator name is 'Commodity Channel Index'. The oscillator became popular around 1980 thanks to the book published by Donald Lambert entitled 'Commodities Channel Index: Tools for Trading Cyclical Trends'.

    Although initially it was used (and in fact it is the most recommended) in raw materials, it has ended up being used in other financial assets. Many traders use this indicator on stocks, bonds, and even currencies. It should be noted that, despite being an oscillator, it is also used as a trend indicator. Next, we will see how it is calculated. And finally, we will put examples of how it should be used according to the trading manuals.

    Graphical representation of the Commodity Channel Index (CCI)

    Its appearance is as follows:

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    In the graph you can see the price of Brent oil in Japanese candles. Each candle represents one day. The CCI oscillator defaults to 14 periods. With which the current value is thrown based on the data of the last 14 periods. The ITC has two important lines. The one with +100 and the one with -100.

    When the indicator is above 100 it indicates that the asset is overbought. Likewise, when the indicator is below -100 it indicates that the asset is oversold. Additionally, some traders use the zero line. If the CCI is above zero the trend is bullish. If the CCI is below zero the trend is bearish.

    Commodity Channel Index (CCI) calculation
    The calculation of the CCI is very simple. A formula is applied on the periods that are established and that yields a result. That result is the CCI. The CCI formula is:

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    The current typical price is the sum of the closing price, maximum price and minimum price divided by three. The moving average of the typical price of X is the moving average of the typical prices of the last X periods. The mean deviation of X is the standard deviation of the last X periods. Finally, the constant of 0.015 is a constant that Donald Lambert added so that between 70% and 80% of the CCI values ​​would be between -100 and +100.

    ICC Interpretation
    The CCI measures the difference between the change in the price of an asset and its average price change. Traders typically use the indicator in three different ways: divergence, trend, and overbought and oversold levels. More advanced traders can, through the CCI, interpret the strength of the trend, as well as the probability of a reversal of the main trend.

    Overbought and oversold levels
    The overbought and oversold levels are the +100 and -100 levels respectively. Based on this use of the indicator, a trader should be alert whenever the indicator exceeds the value of +100. At that time, the asset is overbought and at any time it can reverse its trend. Conversely, if the CCI is below -100, the asset in question is considered to be oversold. The trader or the analyst must be attentive to these values ​​since at any moment the downtrend could turn into an uptrend. Below is an example with this use on the price of Brent oil.

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    As we can see, the indicator gives many failures interpreting this type of signals. This does not indicate that these signals are not working, but that on this asset they are likely not working. It does reveal, however, the justification for the interpretation made by more advanced traders. As we have indicated above, the most advanced traders are able to interpret the strength of a trend with this indicator. Its interpretation is governed precisely by a use contrary to the current one. If the indicator is above 100, the uptrend is strong. If it is below -100 the downtrend is strong.

    Trend indicator
    According to this interpretation, a financial asset is in an uptrend if the CCI is above zero. Meanwhile, if the CCI is below zero, the trend is downward. The further from zero it is, the stronger the trend will be. In the following graphic we can see an example of this use.

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    The trend signals seem, in principle, reliable signals, with the problem that in lateral periods we can detect many false signals.

    Divergences

    Finally, divergences in the CCI can give valid buy or sell signals. This, always taking into account, yes, the difficulty involved in operating divergences. In this sense, it will be considered that there is a bearish divergence when there are new highs in the price and they are not accompanied by new highs of the indicator. Likewise, there is upward divergence when there are new lows in the price and there are no new lows in the indicator.

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    Though trading on financial markets involves high risk, it can still generate extra income in case you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.

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    What is CCI indicator:
    The CCI indicator is known as an oscillating indicator that helps the trader to find out if an asset is overbought or oversold, and it also helps to indicate weakness and change in the trend by identifying either the highs or lows of the asset's price. The CCI indicator appears on the chart as a moving average line that shows the movement of the data analyzed below. The graph shows how the CCI indicator appears. It is noticed that the indicator line moves most of the time in a range between + 100 and -100 as shown above.

    How to trade with CCI indicator?
    CCI indicator above + 100 shows that the asset is overbought, which means that the price has started to move downward. The CCI indicator below -100 indicates that the asset is oversold, which means that the price has started to move upwards. The trader has to sell when the CCI indicates the overbought condition, you can open a trade when the index crosses again the + 100 point, returning to the downside, and the trader must buy when the CCI indicates the oversold condition and open a trade when the indicator crosses to - 100 to the upside, and below the chart, the indicator shows that the index has crossed +100 point.

    How to change the CCI indicator settings?

    - Knowing that the standard settings for the index are 14 periods, i.e. the recent price change is measured against the average price change over 14 periods of time. Reducing the settings from the 14 period leads to a more reactive average, but the reading remains at a peak + 100 or _ 100 for a long time. Also, raising the settings from 14 period leads to an average of less interaction between the levels of +100 and -100. But here, when it reaches these extreme levels, it tends to stay for a long time, the difference between the lower peaks and the higher peaks of the CCI setting is observed, It is also noted that the indicator with numbers less than 14 periods, which is 4 periods, ranges from above and below linear + 100 -100 in sequence.

    - If settings are very low, they will lead to wrong signals, the trader should enter into the deal early, but if the settings are higher, this leads to avoiding the wrong signals, but in return it reduces the possibility of profit. As for the correct settings, the trader enters the deal earlier and thus more profit. He also has to note that if he puts a higher value for the CCI settings, the reading changes and the signals will be less, plus less errors. Whatever the case, changing the index settings from the benchmark is subject to the interest of the trader and whether these changes improve his strategic results or not, and this is the CCI indicator in the hands of the investor to benefit from it according to his trading interest.
    Thank you for reading.
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