By working with CCI, you can achieve good trading resultsJohannes Röll 15 / March / 20 Visitors: 447
CCI indicator is a favorite technical indicator of many successful traders. Theabbreviation CCI is interpreted as commodity channel index. It refers to the type of oscillators and is a leading indicator, that is, it gives information to the trader on the asset chart before a new trend is formed or a reversal occurs. Initially, the indicator was used in commodity markets, however, the effectiveness of this indicator has also been shown in other trading instruments. The indicator shows how much the price of the selected instrument deviated from the average value.
The formula of this indicator is as follows:
CCI = T - MA (T) / 0.015D
where T is a typical price, which is determined by the formula T = (High + Low + Close) / 3,
MA (T) - n-period simple moving average of T,
D is the average deviation of the absolute value of the difference between the typical price T and its simple moving average MA,
0.015 is an empirically selected scaling factor.
In the metatrader, the period is set for this indicator by default to 14, however, for different markets and time intervals, as well as certain strategies, you can select different values, thereby customizing the indicator for yourself. The author Donald Lambert himself recommended using 1/3 of the full cycle. For example, if local lows are formed approximately every 30 days, then for the CCI indicator it is optimal to use a period of 10.
Basic indicator signals:
If the indicator line crossed the level of -100 from top to bottom, this indicates a possible further decline.
If the indicator line crossed the level - 100 from bottom to top, then this indicates a possible price reversal and a buy signal.
If the indicator line crossed the level 0 from the bottom to the top, then this serves as confirmation of the purchase.
And vice versa,
If the indicator line crossed the level 100 from bottom to top, then this indicates a possible further increase
If the indicator line crossed the level of 100 from top to bottom, this means a possible price reversal and a sell signal.
If the indicator line crossed the level 0 from top to bottom, then this serves as confirmation of the sale.
The second type of signals of this indicator is convergence and divergence, which are quite strong trading signals in the technical analysis of the price reversal. If there are discrepancies in the chart of the asset and the technical indicator in overbought (above level 100) or oversold (below -100) zones, this combination of indicator readings enhances the trading signal for sale or purchase. It is also possible to draw trend lines on the indicator chart by connecting successive highs or lows, the breakdown of which is regarded as signals to open or close positions.
Going beyond 100 / - 100 means strong market volatility
The higher the indicator value is set, the fewer signals to buy or sell will be, respectively, the reliability of these signals will be higher. For example, the CCI indicator with periods of 50 - 55 works well on a 4-hour timeframe on major currency pairs and not only. Conversely, with a decrease in the indicator period, the sensitivity increases, as well as the frequency of the emerging signals. However, many of them will be false. This parameter is well suited for daily and higher timeframes, for example, with periods of 9, and you can additionally set the levels -200 / -300 and 200/300
Proper use of the indicator guarantees a trader a profit, so before you start trading with this indicator, familiarize yourself with it and study it on the history of quotes, adjust it for yourself if necessary. To increase trading confidence and signal reliability, it is important to combine CCI with other indicators and technical analysis knowledge.
Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer