November 25, 2009

The CCI (Commodity Channel Index) Technical Indicator

The CCI indicator, or the Commodity Channel Index indicator to give it it's full name, is one of the more popular technical indicators amongst forex traders. It is basically an oscillating indicator that can be used to identify overbought and oversold conditions, and to identify new trends.

If you are using it to identify overbought and oversold conditions the common advice is that you should think about closing any long positions when the CCI indicator is above the +100 line, and consider closing short positions when the CCI is below the -100 line.

This is fairly basic stuff but I don't necessarily think that's the most effective way to use this particular indicator. For instance I know a trader here in the UK who looks to enter positions when these +100 and -100 lines are breached, particularly when they coincide with a new high or low.

For example if the price has just made a new high and the CCI has pushed through the +100 level, this often indicates a very strong upward trend. So rather than close any long positions or open any short positions, it's often a very profitable strategy to open a long position and buy into this strength. You can then think about closing your position when the CCI is above the +200 or +300 mark.

Another benefit of the CCI indicator is that it helps you to identify new trends. You will generally find that a new upward trend begins when the CCI crosses above 0, and a new downward trend begins when the CCI crosses down through the 0 line. Obviously the longer time frame you use, the more reliable this indicator will prove to be because the trends are more clearly defined.

If you want to take this a step further you can use the CCI indicator on multiple time frames. This is something I experimented with a few weeks ago. What I did was I plotted the 20, 60 and 200 period CCI, and I used the CCI(200) to indicate the trend - above 0 = bullish trend, below 0 = bearish trend - then I used the shorter term CCI indicators as my entry point.

In other words when the CCI crossed above 0 on the CCI(20) (and ideally the CCI(60) as well), I would open a long position, providing the CCI(200) was already above the 0 line.

Indeed I've just noticed there was a perfect set-up on the 5 minute chart of the GBP/USD pair earlier today. The CCI (200) has been comfortably above 0 since yesterday afternoon, and early this morning both the CCI(20) and the CCI(60) crossed above 0 at exactly the same time (06.10 UK time) before going up around 110 points.

I haven't really developed this trading system very much since I first experimented with it, but I definitely think it has a lot of potential, particularly as a short-term trading system.

One final way you can use the CCI technical indicator is to look for divergence patterns. I've already discussed CCI divergence trading once before, so I won't go into too much detail here, but if you use a couple of different CCI indicators and wait for divergence on both of them, you can often identify turning points in the market.

So the point I want to get across is that there are lots of ways you can use the CCI technical indicator when trading the forex markets.

 

 

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7 Comments on The CCI (Commodity Channel Index) Technical Indicator »

November 25, 2009

johan @ 5:08 pm:

I think you do have something here.I'm going to practice it.

Chamane @ 9:38 pm:

I use CCI(50) crossing 0 and CCI(14) just like DrBob settings. CCI(50) is telling the trend so I check CCI(14) going in opposite overbought/oversold area. When it's coming out of OB/OS going with the trend, I enter. The problem is to exit. Up to now, I use last swing high/low for stop loss and exit at 2times the risk for profit.

November 26, 2009

medo joe @ 7:13 pm:

i never tried considering the CCI indicator, after reading the article i think i should take a closer look, i'm used to stochs at the moment, works nice but like all lagging indies, it reflects the change in momentum not in price,softly saying it : "in momentum more oftenly than change in price" ..so i wasted a lot of time trying to tweak it and it's exhaustive. I'll dive in CCI and i hope it could do a better analysis against the stochs. If you can help providing your opinion about this issue, any response is appreciated.
good post.

November 28, 2009

pat osifo @ 3:06 pm:

I have read through this writeup and I am going to try it out. I have high expectations. As a newbie in forex I need things like this to be able to get direction. Thanks.

December 23, 2009

SULAIMAN @ 11:14 am:

honestly cci is a powerful indicator
gives acurate entries ,but no exits.
very perfect in entries, use recent high or low as stoploss,and dont panic any pressure while on trades, it will eventaually goes in your favour

thanks

May 14, 2010

Johan @ 9:22 am:

Hi,

I tried your settings on my demo account and I must say it works very well. What I want to ask is if you are still using it and if so did you make any changes or add any extra indicators to get a better % win rate.

Re
Johan

March 12, 2015

joseph kee @ 7:15 am:

I have trade cci entering buy as it cross the 100+ and sell as it cross the 100-.

Altough many website has taught us that 100+ is overbought and we should do a sell (much like a stochastic), i think we could possibly be more profitable if we enter buy the moment the line cross 100+.

I think the logic is that most time the line will continue to go up before it is truely overbought. So enter buy and earn some pips before it really turns overbought and begins to turn down.Thats the time we exit.

thank you

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