On the first trade, the price reverses creating a relatively big bearish candle.
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First, I feel I have a higher probability for trading success if I buy fresh demand levels where the CCI is also oversold. Second, a bullish divergence formed in early July as the stock moved to a lower low, but CCI formed a higher low.
CCI indicator is shown on charts as a moving average line The CCI indicator is usually presented on charts using a moving average type line that smooths out the data being analysed.
The image below shows how the CCI indicator appears on charts: A reading below suggests that an asset has been oversold and that the price may start moving up.
Conversely, they will look to buy when the CCI indicates oversold conditions — entering their trade when the indicator crosses the back to the upside. When it crosses back to the downside, you could look to sell.
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. We then place our stop loss order right above the most recent top. This is highlighted with the red line on the image. The take profit signal comes when one of the indicators give us an opposite signal. This happens when the CCI line enters the oversold area, which is shown by the rightmost green circle. Commodity Channel Index Trading Strategy Now we will apply all the rules we discussed above into a complete trading strategy.
The green circles on the two indicators show when each were aligned and we opened a trade. The red horizontal lines on the chart show where we placed our stop loss orders for each trade.
On the first trade, the price reverses creating a relatively big bearish candle. In this exact moment, the lines of the stochastic RSI perform a bearish crossover and exit the overbought area. The CCI also exits the overbought area. Therefore, we have matching signals with the two indicators and we short Twitter. Our stop loss is located above the upper candlewick which creates the previous top. Observe that the price starts decreasing.
The CCI even creates a bearish trend line blue. Suddenly, the CCI has a slight interruption of the At the same time, the SRSI also has a bullish crossover in the oversold area. We need only one signal to exit the trade.
Furthermore, the CCI breaks its blue bearish trend upwards, putting an extra emphasize on the bullish idea. Therefore, we buy Twitter and place a stop loss order below the bottom as shown on the image. The price starts increasing afterwards and breaks its previous top.
The two indicators are increasing too and they both enter the overbought area. However, the bearish signal comes from the SRSI, which lines cross downwards.
Then the two indicators exit the overbought area, creating a new short signal on the chart. Therefore, we sell Twitter and place a stop loss order above the top. The price starts a bearish run afterwards and the two indicators begin dropping.
On the way down, the CCI creates a bearish trend line. See that the price breaks the trend in the second green circle on the line. This is the exit signal from our trade and we close the deal.
Now we have the breakout through the CCI trend as a first bullish signal. Therefore, we are waiting for a signal from the SRSI. It comes when the SRSI enters the oversold area and its lines cross upwards. Meanwhile, the CCI line returns to its already broken bearish trend, it tests it as a support and bounces upwards. This gives additional strength to the bullish CCI signal. 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.
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.
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.