Over 20 years, the Commodity Channel Index (CCI) yielded double the profits compared to a buy-and-hold strategy. Based on my tests, it is one of the best indicators available today. To test the Commodity Channel Index on the 500 largest US stocks in the S&P 500, I used the excellent backtesting solution provided by FinViz Elite. Finviz’s point-and-click backtesting engine allowed me to test the Commodity Channel Index-50 on a daily chart over the previous 20 years.
Now, day trading is all about getting in and out of the market fairly quickly. The CCI indicator was created by Donald Lambert and is a way that we trade our CCI trading system. Due to the versatility of the oscillator known as the CCI, it is commonly used to identify reversals and divergences in the market. We are not a financial institution and do not offer a retail trading.. You can invest in different markets with the same portfolio and trading account.
Another determination of a new emerging trend with the CCI is divergence. If the price of the asset is making new highs but the CCI is failing to surpass its previous highs, it indicates a bearish divergence. Similarly, if the price is making new lows but the CCI is failing to make new lows, it indicates a bullish divergence.
However, it tends to perform the same in the stock market or the Forex currency market and even the cryptocurrency market for that matter. One of the fundamental trading principles that our team at Trading Strategy Guides religiously follows is to trade in the direction of the dominant energy of the market. Finally, the effectiveness of the CCI can vary depending on the market conditions. It tends to be more effective in trending markets than in sideways or rangebound markets. The CCI, or Commodity Channel Index, was developed by Donald Lambert, a technical analyst who originally published the indicator in Commodities magazine (now Futures) in 1980.
How to use CCI indicator for Day Trading
Do you want to test any indicator, chart pattern, or performance for any US stock? Our Trendspider review unveils insights into discovering the most powerful trading strategy development and testing service. The indicator compares how far the price is from its statistical mean, calculated using a moving average.
What indicators are better than Commodity Channel Index?
Its power and simplicity impressed me, making our research more efficient and successful. Our testing shows that the best setting for Commodity Channel Index is 20 on a 1-minute candlestick which yielded a 50% win rate. CCI 50 on a daily chart was the best configuration yielding 580% versus the S&P 500 over the last 20 years. Much is written about the best way to trade the Commodity Channel Index, but my testing shows only one profitable strategy. The proven way to trade the CCI indicator is to buy when it moves above -100 after dipping below it and sell when it moves back below +100 after rising above it. The more profitable exit strategy is to take profits when the CCI touches the +200 level.
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- This highlights the power of using tailored Commodity Channel Index strategies for long-term investments and short-term trades.
- Like any other momentum oscillator, the CCI is not designed to be used as a standalone tool.
- There is one more trading condition that needs to be satisfied before pulling the trigger.
- When it reaches certain levels, it is considered overbought or oversold.
You can develop and ndax review test your original day trading CCI strategy by backtesting with TrendSpider. Our 396 years of TrendSpider backtests revealed conclusively that the best setting for the Commodity Channel Index is using CCI-20 on a 1-minute chart, producing a 50% win rate. Additionally, using a CCI-50 setting on a daily chart over 20 years produced a 553% increase in profit versus a buy-and-hold strategy on the S&P 500. But more importantly, overall, the strategy significantly beat the S&P 500 over 20 years because the profits of the winning trades outnumbered the losses of the losing trades. Traders can incorporate volume indicators to confirm the strength of trends signaled by the CCI.
This is a safe way to protect your aafx trading review capital and limit your losses in the long run. The reason why the CCI formula uses a constant of 0.015 is to ensure that the CCI value would not fall between -100 and +100 that often. But, of course, that the CCI values are dependent of other variables such as the look-back period. If you want to dive deep into the math behind the CCI indicator read on. This means that we can use the crossing of the zero line to gauge a shift in the market sentiment.
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Incorporating fundamental analysis and employing risk management techniques like setting stop loss and take profit levels can also add layers of robustness to a CCI-based trading strategy. Overall, when used wisely and in combination with other analytical tools, the CCI can be a powerful tool in making informed and potentially profitable trading decisions. There are very few technical analysis indicators better than the Commodity Channel Index. Money Flow Index is a very profitable indicator, also Heikin Ashi charts, combined with the rate of change, RSI, and bullish chart patterns. Our testing has proven these indicators to be equally effective, work on many timeframes, and are successful in trading strategies.
Some so-called trading gurus suggest selling when the indicator moves above the 100 lines (overbought) and buying when the indicator is below the -100 line (oversold). The CCI oscillator can move above and below the zero line, a reference point for overbought and oversold conditions. Values above +100 indicate an overbought condition, while values below -100 indicate an oversold condition. If the indicator moves away from these thresholds, the price will likely reverse or pause before continuing its trend. The overarching principles of the CCI strategy can be applied to your own trading strategy as well.
How to Trade CCI Buy and Sell Signals
When the CCI moves from negative or near-zero territory to above 100, that may indicate the price is starting a new uptrend. Once this occurs, traders can watch for a pullback in price followed by a rally in both price and the CCI to signal a buying opportunity. There are four main moving averages; simple, exponential, weighted, and Hull. The Commodity Channel Index is an oscillating indicator with a different calculation and significantly better performance. Our 20 years of backtesting show that RSI is better than Commodity Channel Index, with an RSI return of 1282 percent, vs. CCI of 1108 percent.
The Commodity Channel Index is one of several useful tools for traders to determine cyclical buying and selling points. Traders can utilize The CCI tool most effectively by (a) calculating an exact time interval and (b) using it in conjunction with several other forms of technical indicators. Like most oscillators, the CCI was developed to determine overbought and oversold levels.
Can toggle the visibility of the CCI as well as the visibility of a price line showing the actual current price of the CCI. Can also select the CCI Line’s color, line thickness and visual style (Line is the Default). The time period to be used in calculating the SMA portion of the CCI (20 is the Default). You want to be a successful stock investor but don’t know where to start.
We want to see a weak retrace in the CCI indicator that barely goes below the +100 level, but at the same time, we need to look at the price action retracing more than the CCI did. As a leading indicator, the Commodity Channel indicator can provide us with excellent great trade signals. When we get a CCI reading above the +100 level, that shows statistically the EUR/USD gained more strength than average and therefore great for buying opportunities. Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of this entry method. Also, read trading discipline which is also a most important skill for successful trading.
TradingView is also good, offing pine code backtesting and global stock exchange, crypto, and forex coverage. To read the Commodity Channel Index, look for the line crossing down through the 100 line for a sell signal and crossing up through -100 for a buy signal. The Commodity Channel Index is an unbounded oscillator, which means its extreme highs and lows can wildly fluctuate. A value above 100 is considered overbought, and less than -100 is considered oversold. As soon as the CCI indicator turns below the zero level, we want to exit our trade.
