The commodity channel index belongs to the category of market indicators: this is the most powerful weapon for traders for many years. The true effectiveness and significance of this indicator is demonstrated by the fact that CCI is included in most trading terminals and platforms: developers with hunting implement it in classical analytics tools. But the effectiveness and usefulness of this tool largely depends on whether the player himself is able to work with him.
So, let's consider this technical indicator in more detail.
1. Historical Reference
The first time about this forex tool was mentioned in the fall of 1980, at a time when Donald Lambert reported on the results: he published the experiment data with charts in the journal Commodities.
From the very beginning, the expert worked in the sphere of commodity markets and believed that the price of commodity commodities should change cyclically, rejecting the laws of chaos. Specifically, based on this, CCI arose precisely as a result: it was an experiment with testing the hypothesis of cyclicality of price movement. At the moment, this is one of the most popular and widely used instruments of the currency market.
2. The formula of the indicator and its main components
The CCI indicator (Commodity Channel Index) is positioned as a classical oscillator, a tool for technical analysis. Using it, you can determine the average deviation of the asset price from the average statistical value of the same asset, but for a fixed time interval. As a rule, it is used by traders in order to recognize the overbought or oversold area.
On each candle chart, the CCI indicator performs calculations: the first is calculated the typical cost - TP. And then, using the simple moving average, the result is averaged (over a certain period). The initial data of the -SMA stage. The likely average deviation of Typical Price (from SMA)
Curiously, the 0.015 coefficient is not physically loaded: Lambert got it by busting - he picked up the parameter, assuming that the value stayed for a long time between ± 100. In the dependencies used to calculate the CCI, the following notations are adopted:
• H, L, Close - prices for the maximum, minimum and closing of the candle, respectively;
• TP - typical price
This calculation is carried out in automatic mode: the calculation takes place after each candle is closed.
3.Configuration CCI. Its appearance in the terminal
After the indicator is added to the chart of the currency pair, it will be built in a separate window (the lower part of the monitor). The main concept in the construction of CCI is the presence of absolute immunity to redrawing. It's about the price history. The indicator includes the following settings:
-period (the number of candles on which the program counts is determined. The smaller the value of the period, the brighter the line reacts to the chart changes.
In addition to the usual classical price, the oscillator is formed by other price parameters - the opening price (closing) and other costs;
-option levels allows you to add and set an arbitrary level (to the already available ±100, 0);
- There are also settings that do not apply to the algorithm for calculating the indicator.
For example, you can specify the type of the line, adjust its color, thickness and select the time interval - the timeframe on which the indicator will be reflected. These parameters are responsible for the intervis (visual part) and convenience for the user.
4. Strategies with an oscillator and variants of signals by CCI
In the course of work on the usual signals, the most basic levels ±100 are taken into account. The key stages will be those moments when the CCI indicator passes through these marks.
So, the following types of signals are distinguished:
1) the intersection by the line of the oscillator of the level +100 from below and the entry of the curve into the next zone. This option indicates the start: he predicts the opening of trades for purchase by traders;
2) the intersection of the left +100 on top and the entry in the interval ±100 indicates the weakness of the growing market. To correspond, it is still too early to sell, but it is possible to fix the profit on long positions: for this purpose, a part of the lot is fixed, or profits are protected (using the usual stop loss, moving the order to the profitability zone);
3) the indicator line of the commodity channel went beyond the limit -100 from top to bottom. This is a clear signal that bears prevail in the market, and therefore, traders should choose short positions;
4) breakdown of the line -100 from the top: indicates the beginning of the fixing of orders: we fix the orders that were opened for sale. Bearish trend is clearly weakening.
But, do not forget that it is more advantageous to use the oscillator in pairing with other instruments (signals): for example, the figure Double top or triggers, which amplify the signal that the indicator gave us.
Carrying out technical analysis with this indicator gives traders an opportunity to disclose overselling and overbought zones. We can determine the turning points of the exchange and recognize weak market indicators. CCI can be used alone or in combination with other tools.
P.S. Effectively use the oscillator for trading on the inside of the day on the timeframe H4 and for popular currency assets!