CCI (Commodity Channel Index)

Donald Lambert developed the Commodity Channel Index (CCI). The word commodity in the indicator's name might seem to apply only to the analysis of commodities, such as oil or gold. But this indicator can be used for analyzing and making decisions about other assets. Let us understand how it works.

How to Calculate the CCI Indicator?

The CCI is an indicator of the speed of price change. The calculation resembles the calculation of the average deviation in statistical analysis.

The CCI indicator is calculated using the following formula:

CCI.jpg

How to Implement CCI Indicator?

To select the Commodity Channel Index indicator in MetaTrader, select

Insert -> Indicators -> Oscillators -> Commodity Channel Index

Picture1.png

As we already know, the oscillator consists of an indicator line, which moves between two zones - overbought (level above 100) and oversold (level below -100).

The default order of the indicator is 14.

The indicator creator, Donald Lambert, recommended using an indicator order of 20.

Picture2.png

How Does the Commodity Channel Index Work?

CCI line crossing with its boundary levels

The first and most important type of signal from the indicator is, of course, the entry of the CCI line into the overbought (above +100%) or oversold (below -100%) zone.

The CCI belongs to that rare category of indicators, the interpretation of which is somewhat different. Some analysts believe the CCI indicator signals when it leaves its overbought/oversold zone.

For example, if the CCI exits the oversold zone (-100%), it is a signal to open a trade upwards.

If the CCI exits the overbought zone (+100%), it is a signal to open a trade downwards.

Picture3.png

Some technical analysts and Lambert himself suggested interpreting the indicator differently.

When the indicator crosses the +100% line upwards - it is time to open long positions.

When the indicator line crosses its lower boundary downwards - it is time to open short positions.

Picture4.png

As you can see, some of the false signals are cut off. Thus, the second approach is more accurate.

In the Encyclopedia of Technical Market Indicators, Robert Colby suggested using Zero CCI. This is the crossing of the CCI indicator with its zero line. The point is that the CCI line has been in the zone between -100% and 100% for a reasonably long time, which makes it impossible to use the indicator for transactions opening.

Zero CCI assumes that the trader can independently draw the zero line on the chart and use the following approach:

A long position opens when the CCI indicator line crosses its zero level upwards.

A short position opens when the CCI indicator line crosses its zero level downwards.

Picture5.png

Divergence

The second type of signal, which gives the indicator, is less obvious but can also be used in trading - it is the divergence of the indicator movement and the price chart.

For example, if the indicator rises while the price falls - it indicates a possible imminent price reversal.

This is not a clear signal. However, it only hints at a change in the trend.

Picture6.png

CCI trend lines break

The CCI line can be analyzed just like the price itself. For example, you can build a trend line to the CCI line itself.

If the CCI line breaks its trend line upwards, it signals to open long positions.

If the CCI decreases and breaks its trend line downwards - this is a signal to open short positions.

Picture7.png

Conclusion

Commodity Channel Index is an effective indicator and can be used on long and short timeframes.

Frequently asked questions

  • What’s the difference between RSI and Commodity Channel Index?

    RSI is based on the principle of the strength of an asset on days when prices rise to its strength on days when prices fall.

    CCI calculates the difference between the price at the moment and over time.

  • Which indicator works best with CCI?

    You may use any indicator with CCI. One of the best indicators which is used with oscillators is Parabolic SAR.

  • What is the CCI strategy?

    Open position up when the CCI line breaks the upper line; open position down when the CCI line breaks the lower line.

Latest news

USD: Powell Speaks on Cutting Interest Rates

Jerome H. Powell, the Federal Reserve chair, stated that the central bank can afford to be patient in deciding when to cut interest rates, citing easing inflation and stable economic growth. Powell emphasized the Fed's independence from political influences, particularly relevant as the election season nears. The Fed had raised interest rates to 5.3 ...

BTCUSD: Rich Dad Says Buy

Robert Kiyosaki, the author of "Rich Dad Poor Dad," has updated his bitcoin price forecast, now projecting the cryptocurrency to hit $100,000 by September. He plans to acquire more bitcoin before April, attributing his decision to the upcoming halving event. Kiyosaki advises investors to consider adding bitcoin to their portfolios and suggests...

WTT: Currency Pairs To Trade In April

Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.

Deposit with your local payment systems

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera