How traders use CCI (Commodity Channel Index) to trade stock trends

Furthermore, the CCI breaks its blue bearish trend upwards, putting an extra emphasize on the bullish idea.

A bearish divergence can be confirmed with a break below zero in CCI or a support break on the price chart. Despite a CCI confirmation, price never broke support and the divergence did not result in a trend reversal. 

In a strong uptrend where price is making higher highs and higher lows, the CCI should as well.

CCI Indicator 

The commodity channel index is an oscillator used to identify cyclical trends. The CCI indicator consists of a line which fluctuates above and below a zero line. The indicator creates overbought/oversold signals. However, it is also used to draw trend lines and to discover divergence. The commodity channel indicator is not a good standalone tool.

Now we go long Twitter and we place a stop loss below the small bearish hammer candle on the chart. The price starts increasing afterwards. Although the indicators turn out to be pretty chaotic during this trade, they manage to inch higher.

The CCI then breaks the This is the second short signal on the chart. Therefore, we sell Twitter and we place a stop above the top as shown with the last red line on the image. The price then decreases rapidly and the two indicators follow the same example.

Here we get the exit signal only 20 minutes after we enter the trade. The CCI indicator breaks the At the same time, the longest trade took 1 hour and the shortest one took 20 minutes. This is why this trading strategy falls in the category of scalping. For some of you, 20 minutes is far from scalping, but the key point is the small gains and not necessarily the length of time in each trade. The image illustrates three trading examples based on the CCI indicator trading strategy in combination with the stochastic RSI.

The first trade appears when the CCI line breaks the overbought area downwards. At the same time, the lines of the stochastic RSI cross downwards in the overbought area. Therefore, we sell the stock and we place a stop loss above the top created after the decrease as shown on the image.

As you see, the price decreases afterwards. We stay in the trade until the CCI indicator enters the oversold area. This is an exit signal according to our trading strategy and we need to close the short trade. The second trade comes when the lines of the SRSI indicator cross upwards in the oversold area and one period later the CCI line breaks out of the oversold area.

Therefore, we go long and we place a stop loss order below the bottom created as shown on the image. This is an interesting trade because both indicators give controversial signals. As you see, after we enter the long trade, the stock starts increasing. The jump lasts four periods and then the price begins to drop, as well as the two indicators.

They even go back in the oversold area; however, we keep our trade open. After all, in order to close the trade, we need to see one of the indicators going into the overbought area, or to see the price hitting our stop loss order. The price then resumes its bullish move. The increase breaks the previous stop created and at the same time the indicators increase.

We close the trade with a profit when the CCI line goes into the overbought area. At the exact same moment, the stochastic RSI lines crosses downwards. Less than 20 minutes later the stochastic RSI goes into the oversold area and its lines cross upwards. This gives us an exit signal for our trade and we close the position.

In these three trades , we generated a profit equal to about 1. Identifying divergence on an indicator or determining that you are in an overbought or oversold situation can help you identify high-probability opportunities in the markets when price is at supply or demand. I mentioned the terms overbought and oversold. I should explain what these mean. The CCI falls into the family of indicators known as oscillators. Oscillators typically have a level that marks overbought and oversold.

This means that price has risen so much so fast that it has deviated from the average price much more than normal. There is a high probability that this movement is unsustainable and that it will snap back to the average soon. The CCI oscillates above and below zero.

When the CCI reads below , then price is said to be oversold. It has sold off to the point that it has dropped well below the normal deviation from the average. This setting can be raised or lowered depending on your preferences.

The two following images demonstrate the difference between a low-value and a high-value CCI setting: This image above shows a CCI with the setting of 4, which is much lower than the standard setting of Now contrast that with a CCI with an extremely high setting relative to the standard Notice here how the line moves outside the key levels only a few times and how it tends to remain at or beyond those levels for much longer. When looking to change the setting it is important to bear in mind that having it set too low will result in a constantly changing reading, which can result in a higher number of false signals.

When those signals are correct, however, it will get you into trends much sooner, resulting in larger profit potential. If a setting is too low, this can result in a higher number of false signals.

 

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of CCI settings to smooth the technical indicator or make it perform better. Furthermore, beginners technical traders who are still trying to learn how to. use the CCI indicator do change their CCI settings more frequently than. anybody else. As you can see, one can spend a lot of time trying to find the. best CCI settings without making any profit.

Changing the CCI indicator settings The standard setting on the CCI indicator is 14, meaning that it will measure recent price changes against average price changes over 14 time periods. This setting can be raised or lowered depending on your preferences. Join us on our quest to find the best indicator settings. There are dozens of trading indicators. period Commodity Channel Index (CCI) period Stochastic Oscillator; the best settings for trading indicators depend on your understanding of the indicator, your purpose of using the indicator, and you. 

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Commodity Channel Index (CCI) Introduction Developed by Donald Lambert and featured in Commodities magazine in , the Commodity Channel Index (CCI) is a versatile indicator that can be used to identify a new trend or warn of extreme conditions. Using the CCI Indicator to Find and Filter Trades. The Commodity Channel Index (CCI) measures variation between an assets current price, and its average price.

The Commodity Channel Index (CCI) is useful for analyzing overbought and oversold conditions, writes Brandon Wendell, CMT, but its lagging nature makes it an unreliable generator of buy and sell signals. As a Chartered Market Technician (CMT), I get a lot of questions about technical indicators and. The commodity channel index is an oscillator used to identify cyclical trends. The CCI indicator consists of a line which fluctuates above and below a zero line. The indicator creates overbought/oversold signals. However, it is also used to draw trend lines and to discover divergence. The commodity channel indicator is not a good standalone tool.

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