The Commodity Channel Index (CCI) was developed by Donald Lambert. He first introduced it in The Journal of Commodities in 1980. The CCI is a universal determinant that can be used in trading to identify a new trend or to warn of extreme conditions. Typically, the CCI helps to measure the current price levels against the average price level within the required time frame.
What criteria does the CCI measure
The indicator is used to identify trends and oversold / overbought areas. Its primary use was solely for commodities, but is also used for other asset classes such as currencies and stocks.
CCI is based on momentum and is subject to the classification of oscillators. The CCI is between several levels: 100, -100, 0, 200 and -200.
These levels are often used as levels that determine overboughts and oversolds. For example, it will be considered a buyout. Movement below 100 will be used as an oversold condition.
Hence, investors expect price increases and often look for reverse trades.
Donald Lambert, the creator of the indicator, actually used extreme values such as z100 or -100 as a sign of a strong / weak market. Then he tried to take a commercial position in this direction.
While oversold and overbought levels are not part of the JRC’s intent, many Forex traders use these market conditions as the basis of their trading strategy.
CCI
Like many trading indicators, the CCI has several variables that can be changed depending on your trading strategy:
Retrospective analysis period: usually 14 and 20, this is the number of periods before the current one that the indicator will be used in its calculations. 50 can also be used. Levels: These are levels of 100, -200, 0 that can be changed depending on the performance of the trader on historical data. Price Source: Although many indicators use the closing price, the CCI will use the average price of the three prices: q0 as part of the calculation. Therefore, the CCI calculations (using a 14 period configuration) will be as follows:
CCI (Typical Price – 14 Term SMA Typical Price) / (0.015 x Mean Variation)
Typical price q (maximum q minimum closing Q) / 3
The calculation, including 0.015, is to ensure that the limits of 100 and -100 include the price.
Proposal
Commodity Channel Index Trading Strategies deserve their time to test them and demonstrate the potential of using the CCI indicator. Experiment with different stop-loss locations as well as ways to maximize your profits from each trade. As with all trading strategies, make sure you have a trading plan and must follow it.
CCI Post Indicator: How To Use The First On G-Forex.net.