CCI indicator strategy, maybe as a trader you have known or read about CCI indicators.
This indicator is available by default in MetaTrader 4 and belongs to the oscillator category.
It’s just that maybe you don’t really understand how to use this indicator as a tool for your trade.
Donald Lambert was the first person as founder of the Commodity Chanel Index indicator in 1980.
He created this indicator as a tool in commodity trading.
But besides for trading commodities, many traders have using this indicator to trade in all types of markets including foreign exchange.
Lambert made CCI measure the difference between the middle price, movement of price, and the average of the middle price in a certain time period.
You can use this indicator function through the TenkoFX MetaTrader 4 platform, to attach to the chart select Insert-> Indicator-> oscillator->Commodity channel Index
The advantage of trading with TenkoFX is that you can start with only $ 10
You can also backtest indicators through a demo account.
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CCI indicator explained
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What is CCI Indicators?
CCI is one of the indicator indicators in Metatrader. CCI is classified as a group of Oscillator types along with RSI, MACD, etc.
Reading the CCI indicator is actually very simple: if the CCI signal is above the value of 100, the price is currently Uptrend.
Conversely, if the CCI signal line is below -100, then the price is downtrend.
In a simple explanation, when the CCI signal line is pointing up, the market is in a bullish condition.
Conversely, when the CCI signal line points down, it means the market is in bearish condition. But now, CCI is more often to see the level of market saturation.
This CCI indicator chart consists of 3 components, namely:
- CCI signal line
- Overbought area
- Oversold Area
CCI indicator formula
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To calculate CCI, use the formula specified by the founder
Calculating CCI indicator values manually requires several other calculations such as the True Price value, Simple Moving Average, and Standard Deviation.
A simple explanation of the formula for calculating CCI is as follows the value of the CCI indicator with a standard period of 14.
CCI value= (TP – SMA (TP, 14)) / (0.015 x Mean Deviation)
TP value = (High + Low + Close) / 3
- TP = True Price, calculated from the average value of High, Low, and Close.
- SMA (TP, 14) = Average TP value of the last 14 Candles.
- 0.015 = Constants used for scaling. By including this constant, the CCI Indicator value will always fall to around -100 to 100.
- Mean Deviation = Average high TP scores.
How to calculate
- Add the TP SMA value for period 14.
- Use absolute values to add this value so the results will be positive.
- Then divide by 14 to get the average deviation value.
It might be a bit difficult to calculate manually, but if you use Metatrader 4, this is not a problem because you can get the indicator directly through the Insert menu> Indicator> Oscillator> Community Channel Index.
CCI indicator settings
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By default, this indicator uses a time period of 14, but you can change the time period to find the best setting, which gives a high percentage of signal accuracy.
In this case, the selected timeframe also affects the CCI value, you need to adjust it to your trading style and experiment on the timeframe so that it finds the best settings.
Your experience using this indicator will determine the level of success because this requires another understanding of the candle pattern so that you are not trapped in the false signal given by CCI.
You need to study the candle pattern because CCI often shows the price is oversold or overbought, but sometimes, in fact, the trend still continues, and also to avoid large losses, you must place a stop-loss as part of risk management.
CCI indicator best settings
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To get the best settings, this can not be separated also with the trading style that you like, if you use CCI for scalping trading, maybe with this period of 14 you will often find false signals, so you can try to use a larger time period.
If you prefer to use CCI for swing trading on H4 timeframes, using period 14 also gives good accuracy, but you should still pay attention to your risk management plan, because there may be a false signal.
Perhaps the best setting for using the CCI indicator is at the daily timeframe, this will cause false signals to occur less frequently, but nevertheless, dynamic market conditions may allow changes that are not as expected.
But the conclusion is to use CCI on the daily timeframe for the long term trading plan, this will reduce the false signals that occur.
If you only start with 10 $ this may not be an effective amount for long-term trading, so using CCI for long term trading, you need to consider the amount of capital you have.
How to use the CCI Indicator
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CCI calculates various types of average prices with a variety of statistical methods. Complex calculation formulas make CCI indicators possible for all market conditions.
Use the CCI Indicator to analyze the level of market saturation
In general, CCI is often used to see the level of market saturation (Overbought and Oversold).
Overbought and Oversold is a condition for detecting a reversal or changing trend in the market.
This condition will certainly vary from each type of market.
In Overbought conditions, the CCI signal line will be above +100, while in Oversold condition, the CCI signal line will be below the -100 level.
To use CCI as a determinant of overbought and oversold areas, then you need another indicator as a support so that there aren’t many fake signals trapped that appear on the CCI, for example, you can use a Bollinger band, or Moving Average.
CCI is a lagging indicator so that the signals formed at this time and those formed at the close of the candle can be different.
Use CCI Indicators for Trend Following Trading
In a market movement, prices will sometimes move to one side strongly and continuously.
This situation is usually used by trend-following traders to gain profits.
However, the movement in a trend in one direction is also usually accompanied by small corrections, which are usually called the retracement.
After the retracement occurs, the price will resume its trend.
By using the CCI indicator, this retracement can be detected.
To see the price retracement conditions, go down to a smaller time frame level. Suppose Overbought occurs on H4 chart, then wait for Oversold to occur at the H1 time frame.
After reaching this Oversold condition, you can use candlestick confirmation as a strategy enhancer.
This trading strategy can be used in a variety of markets and time frames.
Use the CCI Indicator to looking for Market Divergences
Just like MACD, Stoch, RSI and other Oscillator indicators, the direction of movement of CCI signals often shows divergence in the market.
Divergence is a condition of price movements and indicators that differ from one another.
This condition can be one of the signals of a reversal in the market..
If the price movement shows the level of Lower Low (LL), but the CCI signal line shows Higher Low (HL), then it means there is a bullish divergence signal; although the price is declining, the momentum of its weakening is slowing down, so prices will soon reverse to strengthen.
Conversely, for bearish divergence, price movements will show the formation of a Higher High (HH) level, but the CCI signal line shows Lower Low (LL).
CCI indicator accurate
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Using this indicator you should not rely solely on upon, but you can combine it with other indicators, this is because CCI is quite sensitive to market changes so that often the wrong signal occurs.
You can use the pivot point which is the best setting for combining CCI indicators.
But you can also try with other indicators such as Bolinger band, stochastic and so on.
In addition, you should also understand the character of the trading instrument that you are trading, for example, if the CCI indicator is for the EURUSD pair, you should also pay attention to news that affects the price movement of this pair, in this case, you focus on the Euro and USD news.
By monitoring the news, you can make technical comparisons of CCI indicators with released news, so you get an idea when using this indicator when high impact news on the instrument you are trading will be released.
CCI indicator crypto
Crypto trading is now increasingly mushrooming, many traders have tried their luck to trade crypto.
Then is this CCI indicator also suitable for market analysis in the crypto market?
As explained earlier, the CCI indicator has widened its use not only for commodity analysis, but also for the forex, stock market analysis, and many traders who use this indicator in the cryptocurrency market.
To use CCI as a crypto trading tool, you can make a combination with the RSI indicator, this will give varying signals, but you will enter when both indicators give the same signal.
The fact that the technicals trader have been using the CCI indicator for almost 40 years, of course, is enough to prove the reliability of this indicator.
CCI indicator that can be used on all currency pairs and time frames is an option to complete your trading system.
But keep in mind, it’s a good CCI indicator to be used with the help of other technical analysis.
And most of all, you must learn about trading psychology that greatly influences your trading conditions in making trading decisions.
In addition, money management and risk management factors must be included in your trading plan.