CCI Indicator Trading Strategies Guide

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stock cci indicator

The noted candle is an inside candlestick which means volatility compression. If you were to drop to a lower time frame, you would see a range forming. All we are doing is allowing the trend to change, evolve, and trading the first pullback in the trend. Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. The Relative Strength Index (RSI) and Commodity Channel Index (CCI) are both popular technical indicators.

stock cci indicator

Below are the most popular CCI strategies that are used by investors. As noted above, the majority of CCI movement occurs between -100 and +100. A move that exceeds this range shows unusual strength or weakness that can foreshadow an extended move.

Average deviation from ## period simple moving average of the typical price (aka Mean Dev, mean deviation)

High positive readings indicate that prices are well above their average, which is a show of strength. Low negative readings indicate that prices are well below their average, which is a show of weakness. This indicator can be freely used both for detecting long-term trends and for looking at reversals.

CCI moved below -100 on 22-January (8 days later) to signal the start of an extended move. Similarly, the stock bottomed on 8-February and CCI moved above +100 on 17-February (6 days later) to signal the start of an extended advance. CCI does not catch the exact top or bottom, but it can help filter out insignificant moves and focus on the larger trend. The Commodity Channel Index (CCI) can be used as either a coincident or leading indicator. As a coincident indicator, surges above +100 reflect strong price action that can signal the start of an uptrend. Plunges below -100 reflect weak price action that can signal the start of a downtrend.

Bullish/Bearish Divergences

Since CCI is an oscillator, other oscillators like RSI or MACD are not recommended to combine with it. If the CCI indicates a bullish reversal, look for the price and 20 SMA. If the price is above 20 SMA, then the trade can be considered a high probability entry. Since both the RSI and CCI are momentum oscillators, they are able to signal bullish and bearish divergences.

  • The image illustrates three trading examples based on the CCI indicator trading strategy in combination with the stochastic RSI.
  • The denominator serves to give us an easy-to-digest normal range of values for the CCI between -100 and 100.
  • Therefore, traders look at past readings on the indicator to get a sense of where the price reversed.
  • The reason is that trend changes can be messy or fail and this method will use a standard market mechanic – pullbacks in price.
  • On this chart, we’ve had the trend change as well as the first pullback after the change.
  • In the financial market, traders use various tools to plan a profitable investment strategy and boost their winning rates.

No fancy-schmancy moving averages here (e.g. exponential, smoothed, linear weighted, etc). As soon as the CCI indicator turns below the zero level, we want to exit our trade. The first sign that the rally is running out of steam is when the CCI indicator crosses below the zero line.

What is CCI Indicator buy signal?

To attempt to ascertain what strategies work best with what assets. If you’d like to stay abreast of what I’m doing here, just check every week or so. That more or less sums up everything I could glean from the CCI indicator calculation.

One can also look for bullish or bearish divergences for trend reversals. You can trade with the indicator using multiple ways; locating trend direction, finding overbought and oversold levels, and identifying divergences. 20-day CCI is used to generate trading signals in harmony with the trading bias dictated by 100-day CCI. There were bearish signals in late June and early August (red dotted line).

How can CCI indicators be used for day trading stocks?

Technically, CCI favors the bulls when positive and the bears when negative. However, using simple zero-line crossovers can result in many whipsaws. Although entry points will lag more, requiring a move above +100 for a bullish signal and a move below -100 for a bearish signal reduces whipsaws. 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.

Conversely, a longer CCI (40 periods) will have a higher percentage of values between +100 and -100. What needs to be done when entering the market according to the rules established by the CCI forex strategy? If the price divergence is high enough, the trend is considered established, and the CCI indicator follows the trend. The most commonly used strategy is when the CCI indicator crosses the zero mark or the level with marks (+100) (-100). This is one of the best strategies that has proven itself at various intervals.

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