Commodity Channel Index (CCI)

◙ Primary Use: Identifying Overbought/Oversold Markets

◙ Trading: Trading Signals on CCI Readings | Trading Slope Divergences (More reliable signals in ranging markets)

◙ Standard Settings: 14 Periods (Recommended 20 Periods)

 

Introduction to CCI

The Commodity Channel Index (CCI) is an oscillator designed to identify overbought and oversold market conditions. It measures the current price level of a financial asset relative to its moving average. CCI is also used to generate trading signals, which tend to be more reliable in ranging (sideways) markets.

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How CCI Works

The CCI measures the current price level relative to its statistical average, highlighting deviations that may signal potential reversals or continuations.

Key Features of CCI

• Measures price deviation from a moving average.

• Oscillates around a zero line (unlike RSI & Stochastic, which have fixed ranges).

• Works best in ranging markets but can also detect trends.

• Common settings: 20-period (short-term) or 50/100-period (long-term).

 

 Calculating CCI

■ CCI = (TP - SMA (20) of TP) / (Constant x Mean Deviation)

Where:

• TP (Typical Price) = (High + Low + Close) / 3
• Constant = .015

Mean Deviation can be calculated as follows:

• Subtract the 20-period average of the Typical Price from each period's Typical Price

• Take the absolute value of each result

• Sum the absolute values

• Divide the sum by the total number of periods (20)

 

 

 

Trading with CCI

These are the basic uses of the CCI in trading. Keep in mind that in low-volatility markets, the CCI may provide false signals due to weak momentum.

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 Trading Signals

CCI can generate buy and sell signals based on its position relative to the ±100 levels:

• Buy Signal: When CCI is below -100 and then moves back above -100
• Sell Signal: When CCI is above +100 and then drops below +100

Important Notes:

• CCI is more effective in ranging markets than in trending ones
• Signals are more reliable when CCI remains above +100 (before a sell signal) or below -100 (before a buy signal) for several periods
• Slope divergences between the price and the CCI chart (bullish or bearish) can indicate stronger trade opportunities

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Spotting Overbought & Oversold Levels

• CCI > +100 → Overbought (Potential reversal or pullback)

• CCI < -100 → Oversold (Possible bounce or upward reversal)

Note: Unlike RSI/Stochastic, CCI has no upper/lower limits, so extreme readings (e.g., +200/-200) indicate strong momentum.

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Trend Confirmation (Zero-Line Crossovers)

• CCI crosses above 0 → Bullish momentum (Buy signal)

• CCI crosses below 0 → Bearish momentum (Sell signal)

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Identifying Divergences

• Bullish Divergence: Price makes lower lows, but CCI makes higher lows (Reversal signal)

• Bearish Divergence: Price makes higher highs, but CCI makes lower highs (Downtrend ahead)

 

Platform Setup

You can install the CCI indicator directly in MetaTrader 4 or MetaTrader 5:

□ GO TO → INDICATORS → OSCILLATORS → COMMODITY CHANNEL INDEX

□ STANDARD SETTINGS → 14 PERIODS

 

■ Commodity Channel Index (CCI)

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