Martin Pring’s Technical Analysis Explained presents the basics of momentum indicators by covering divergences, crossovers and other signals. There are two more chapters covering specific momentum indicators with plenty of examples. The example below is based on a 20-period Commodity Channel Index (CCI) calculation. The number of CCI periods is also used for the calculations of the simple moving average and Mean Deviation.
What is a good CCI?
the standard setting on the CCI indicator is 14, meaning it will measure recent price changes against average price changes over 14 time periods. … a setting of less than 14 results in a more reactive average that oscillates between the +100 and -100 levels more frequently and does not stay in either cycle very long.
Reaching the downside limits of the oversold zone means the downtrend is weakening, and an ascending correction is about to start, or the ongoing trend might soon turn up. When the CCI moves up to the overbought zone, the uptrend might be exhausting, so there should be a correction, or the trend could reverse down. However, a few days later, on May 27, the Commodity Channel Index generates one more signal to buy; this time, it yields a profit. For convenience, you can fill in the “Parameters” table by entering the name of the analyzed instrument, the analysis period, and the CCI calculation time interval.
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In the chart above, you can note that when the price reaches a new low yet the OBV forms a new high and generates a signal of an upcoming divergence. From the part of the chart colored by the green square, it’s possible to see that a bullish candlestick appears yet the CCI remains in the oversold zone. The second version is a little faster and more convenient in practice.
- A bearish divergence can be confirmed with a break below zero in CCI or a support break on the price chart.
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- Consequently any person acting on it does so entirely at their own risk.
- You can also exit orders with the Commodity Channel Index signals, when the line crosses the indicator in the opposite range.
Next, the price starts growing, which is a good buying opportunity. 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.
How much does trading cost?
In this case, the trader should switch to the M5 or M15 timeframe. In a longer timeframe, there will be fewer signals, but they will be more reliable. 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.
This scan reveals stocks that are in an uptrend with oversold CCI turning up. First, stocks must be above their 200-day moving average to be in an overall uptrend. Second, CCI must cross above -200 to show the indicator rising from oversold levels. The definition of overbought or oversold varies for the Commodity Channel Index (CCI).
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The CCI indicator monitors aberrations from the usual trend cycles. It is based on the fluctuation of the asset’s Moving Average value. Conversely, the RSI simply screens the speed and the alterations of the asset’s price movements and defines the overbought and oversold levels.
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The Commodity Channel Index vs. the Stochastic Oscillator
Past performance of a security or strategy is no guarantee of future results or investing success. Trading stocks, options, futures and forex involves speculation, and the risk of loss can be substantial. Clients must consider all relevant risk factors, including their own personal financial situation, before trading. Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Prior to trading options, you should carefully read Characteristics and Risks of Standardized Options.
Trend changes can be identified when CCI crosses a specific threshold between zero and 100. Regardless of how CCI is used, chartists should use CCI in conjunction with other indicators or price analysis. Another momentum oscillator would be redundant, but On Balance Volume (OBV) or the Accumulation Distribution Line can add value to CCI signals.
How do you use the Commodity Channel Index when day trading?
A take profit is set at a distance of three times longer than the stop loss. You can also set a take profit at a strong resistance (for a purchase) or support (for a sale) level. Another option to exit a trade is when the CCI indicator reaches level +100 or -100, depending on the trade direction (buy or sell). You should attentively follow the extremes in the price charts and in the CCi chart. If the indicator chart and the price go in opposite directions, there is a bullish or bearish divergence.
For highly volatile instruments, a period with a greater value should be selected. Divergence means a situation when the indicator and the price chart move in opposite directions. I suggest beginners master trading using these levels Cci indicator and then consider other ones. The formula includes the Typical Price(t) or p(t); the High; the Low, and the closing price (Close (t)) for the considered period (t). Entry points 2,3, and 4 provide a good opportunity to make profits.
What does the CCI indicator tell you?
The Commodity Channel Index (CCI) measures the current price level relative to an average price level over a given period of time. CCI is relatively high when prices are far above their average.