Despite its name, the CCI can be used in any market and is not just for commodities. Connecting You to the global market through hybrid, innovative technology. The Commodity Channel Index is automatically calculated using our recommended charting software, TrendSpider. My analysis, research, and testing stems from 25 years of trading experience and my Certification with the International Federation of Technical Analysts.
The Commodity Channel Index vs. the Stochastic Oscillator
Our testing demonstrates that the Commodity Channel Index (CCI) is a reliable and profitable technical analysis indicator yielding up to 85% win rates when used with the correct settings. The CCI is a versatile technical indicator that could be applied across various timeframes. The choice of timeframe is largely dependent on the trader’s strategy and objectives. It is essential that traders properly backtest their strategies on different timeframes to find the one that aligns best with their trading goals. The Commodity Channel Index (CCI) could be employed as a momentum-based trading strategy.
- Our test results on 1-minute charts show a success rate of 50 percent.
- The multiple timeframe strategy can be adapted to various asset classes and could also be utilized in conjunction with other technical or fundamental indicators for more robust trading signals.
- TradingView is also good, offing pine code backtesting and global stock exchange, crypto, and forex coverage.
- Traders should consider the broader market context and seek confirmation from other indicators or methods to validate the signals.
- There are four main moving averages; simple, exponential, weighted, and Hull.
The CCI’s sensitivity to price changes makes it suitable for capturing quick movements in a scalping setting. Also, using two timeframes or multiple timeframes can help filter out false signals, thereby reducing the risk of entering an unprofitable trade. The multiple timeframe strategy can be adapted to various asset classes and could also be utilized in conjunction with other technical or fundamental indicators for more robust trading signals. The CCI was originally developed to spot long-term trend changes but has been adapted by traders for etoro use on all markets or timeframes. Trading with multiple timeframes provides more buy or sell signals for active traders. Traders often use the CCI on the longer-term chart to establish the dominant trend and on the shorter-term chart to isolate pullbacks and generate trade signals.
Identifying Oversold Conditions
The CCI measures how far the Typical Price has deviated from its average over a specific period. The scaling factor of 1.5% ensures that about 70% to 80% of CCI values would fall between -100 and +100, making it easier for traders to identify overbought and oversold conditions. The fact that The Commodity Channel Index indicator has been in use now for over 30 years is a testament to the value placed on it within the technical analysis community. Time and time again it is demonstrated how important momentum is when analyzing the market and attempting to determine future moves. Whether you are using CCI to confirm trends or to look for reversals, its momentum quantifying prowess should not go unnoticed.
Which is Better Value or Growth Stocks? We Test The Data!
Our data proves the CCI outperformed the S&P500 over 20 years with an 1108% total return versus the SPY return of 555%. Yes, the CCI indicator is versatile and can be effectively used across different markets including stocks, Forex, commodities, and even cryptocurrencies. It was initially designed for identifying cycles in the commodity market, but its application has successfully expanded to other markets as well.
This brings us to the next important thing that we need to establish for the CCI trading strategy, which is where to place our protective stop loss. If the retrace was weak, it means the dominant energy of the market remains up. The CCI indicator strategy reflects quite well what is happening behind the scene where the actual buying and selling pressure takes place. You have to keep in mind that technical indicators are just mathematical equations. However, the CCI is a leading indicator which means it doesn’t lag behind the price. It is often wise to seek confirmation from other indicators or chart patterns before making a trading decision based on the CCI alone.
Step #5: Take profit if CCI touches 200 or if CCI drops below the zero level. Whichever happens first.
Yes, on 1-minute and daily charts, the Commodity Channel Index is 50-53% accurate, producing many more profitable trades than other indicators. CCI could be the core indicator for your trading as it beats a buy-and-hold strategy. Over 20 years of testing, it produced a return of 1180% versus a buy-and-hold strategy profit of 555%. The Commodity Channel Index can be combined with other technical indicators to form a more profitable trading strategy.
As it pertains to the bullish divergence, first the trader would observe when the asset’s price is making lower lows. The bullish divergence would be confirmed when the CCI turns upwards and crosses above the zero line or a specific threshold, generally -100. To test whether combining the Commodity Channel Index with other indicators is profitable, I suggest using TrendSpider, our recommended stock research, and AI-powered trading software.
However, since the market will only occasionally give us such big trading opportunities we need to have a backup plan. When the CCI crosses for the first time above the +100 level that’s the signal that a new bullish trend is about to start or at least a rally will emerge from where you can extract sound profits. A good trading tip on how to use the CCI indicator is in conjunction with chart analysis, which is the central theme of this CCI trading strategy PDF.
Using the CCI to Find Bullish and Bearish Divergence
For example, combining CCI with the Money Flow Index, Price Rate of Change, or bullish chart patterns could yield higher profits. Yes, the CCI (Commodity Channel Index) indicator can be an effective tool for scalping strategies. Scalpers, who make numerous trades for small profits over very short time frames, can use the CCI indicator to identify short-term price movements and potential entry and exit points.
As a certified market analyst, I use its state-of-the-art AI automation to recognize and test chart patterns and indicators for reliability and profitability. It’s important to note that the CCI can also provide false signals up to 50% of the time, especially with the wrong settings. You need to use them in combination with your price action reading skills.
The Commodity Channel Index (CCI) is a momentum indicator traders use to identify overbought and oversold conditions. It has since been adapted to measure the strength of trends and volatility across other assets, such as stocks and fbs broker review indices. Based on 43,297 test trades, our research shows the Commodity Channel Index (CCI) is a profitable momentum indicator used to identify overbought and oversold conditions.
