What is the commodity channel index indicator?
The commodity channel index is an indicator of momentum developed by Donald Lambert. It reveals the moment when a new trend begins and highlights the conditions of over-purchase and oversold. It measures the current price in relation to a moving average and ranges from +100 to -100. Theoretically, the market is over-bought when the CCI is above +100 and is oversold when the CCI is below the -100 level. Note that theory and reality are not always the same. Often, the commodity channel will double or accurately reflect the price movement. However, it is common to note the divergence between the CCI indicator and the price. This divergence comes in the form of false divergences and valid divergences. All valid signals are validated by price. The JRC is also a leading indicator, but one must know how to use a leadership indicator to avoid sour disappointment.
After careful observation of this magnificent indicator, we have noticed shocking similarities between the commodity channel index AND the humble “Bollinger bands.” Bollinger bands are trading tools created by John Bollinger in 1980 to highlight the buoyancy of volatility. The bands include a medium band as well as two outer bands that deviate from the middle band. Traders use standard deviation more and less two when tracing the “Bollinger Bands”. Likewise, the CCI indicator consists of a medium band (level zero) and two external bands. The top track is the +100 level and the bottom track is the -100 level. It is obvious that the CCI indicator is seeking to play the role of price within a Bollinger. When replacing the price of the CCI indicator and moving the “Bollinger bands” to the external +100 and -100 levels, there is no doubt that the Bollinger bands and the CCI indicator become perfect substitutes for one another
Following these clarifications, we can efficiently use the commodity channel index (CCI) indicator. Please note that when the CCI 14 period is above +100, the price is generally in the upper range of Bollinger 14, two volatility; When the CCI 14 period is below the -100 level, the price will generally be in the lower range of Bollinger 14, two volatility. When the CCI period 14 is in the midline, the price, in most cases, is in the midline of the “Bollinger bands” 14, two volatility. When we compare CCI 50 period to Bollinger period (50.2) and CCI 20 period to Bollinger (20.2), we find that there are many similarities between the Bollinger bands and the index of the commodity channel index. To compare the Bollinger bands with the CCI indicator, you must use the exponential moving average settings for the Bollinger bands. These settings are crucial. Both the CCI indicator and the “Bollinger bands” should have the same period before a valid comparison can occur. Divergences occur. For example, when the price is still in the upper Bollinger range (20.2), but the corresponding CCI period 20 has pulled back near the middle (zero) line, there is a high probability, but not a certainty that the Price can also pull back to the EMA20. If the price is still in the lower Bollinger band (20.2), but the CCI 20 is approaching the midline (zero), the price will normally rally up to the EMA20. The same observation can be noted when using the goods channel index (CCI) period 50 and the “Bollinger bands” (50,2). Please note that the “ TSTW24 ” uses the Bollinger (50.2). It is important to remember that price is the number one indicator, because we are trading the price, not the commodity channel index itself. All valid signals received or derived from the CCI indicator are validated by the price. A signal is one thing, but the entry point is the key.
Negotiation of overbought and oversold CCI as a professional .
No indicator, Will never completely replace the price. Never forget that. We are negotiating the price, not the indicators. One must not try to complicate trade, but simplify it. When the Goods Channel Index (CCI) indicator is over-bought above the +100 level, many marketers will quickly order to sell without additional verification. These are traders who trade the gauge, not the price, and they go from one trading system to another trading system and blame their lack of success on everything except themselves. Trading indicators instead of price is one of the main causes of consistent losing trades. The CCI is often over-bought from the beginning of a new trend or during the third “wave Elliott”. While educated traders are busy placing orders to buy, ordinary traders are selling and losing abundantly because they fail to recognize that a resistance is broken and validated as a level of support while the CCI is still over-bought. Either that, or they did not recognize that a trend line was broken and retested and that the price turned around. When the CCI indicator is over-bought, it is warning traders that high momentum has increased and that the price is in a resistance zone (overbought) period. This does not mean that you should sell or waste your money. Traders should highlight the indicated resistance zone and follow the price. If the resistance is broken and the price meets support above the zone of resistance, traders should buy even if the CCI is still over-bought.
Whenever a signal is given, recognize the signal.
Do not enter the trade very quickly;
Ask the two most important questions: “Is it time” and “Is it the place to go into commerce?”
Please take note that the economic value for money is only a security risk, and your economic order is 15%. ]
Always use stop-loss.
One should not seek to sell immediately when the CCI is over-bought, but wait for the trend line or a support level to be broken, retested and validated as a level Of resistance The price should turn around and bearish momentum should increase On the other hand, when the CCI indicator is oversold below -100, we will not buy immediately We will wait until the trend line is broken to the positive side Or a level of resistance to be broken and validated as a support level.The price should turn around and the bullish momentum should increase.If the commodity index index (CCI) indicator is oversold but a support level is Broken and validated as a level of resistance, we have to sell even if the CCI is oversold. As you can see, paying attention to the price, will help marketers in making excellent business decisions. The commodity channel index indicator may be oversold since the beginning of a new downward trend, prompting unconscious traders to buy. Stubborn and aggressive traders often lose large amounts of money during the third “Elliott wave” in a bearish trend because the CCI usually remains oversold during this bearish wave.
Using the commodity channel index indicator with the “wave Elliott” Theory will allow traders to make better trading decisions. The market is considered overbought at the end of the fifth “Elliott wave” in an upward trend, and the CCI is also over-bought at the end of the fifth wave. On the other hand, the market is considered oversold at the end of the fifth “Elliott wave” in a downward trend. The JRC is currently oversold. Traders await for confirmation at these “hot spot exchange zones” to participate in the ABC corrective waves. False overbought and oversold signals are given during the third “Elliott Wave”. However, overbought and oversold signals are often given at the end of the fifth “Elliott wave”. Wait for validation before entering the trade. When the ICC is over-sold, the optimistic moment has diminished. The oversold ITC highlights a support zone. A support zone can break and become a zone of resistance. In this case, we will sell even though the CCI is still oversold. When you sell, pay attention to the closest support level; When you buy, pay attention to the closest resistance level. Do not buy right on a resistance level. Instead, expect the price to exceed the resistance level and vice versa. The over-bought or over-sold CCI may indicate the beginning of a new trend. On March 4, 2010, IBM’s daily chart showed that the commodity channel index period 14 was oversold (below -100), highlighting a support zone around 127.98.
As ordinary traders were busy placing high stakes, the price broke, retested and validated the level of support as a new zone of resistance. The JRC was still oversold when the downward momentum was increasing. Of course, the price went from 127.98 to the level of 116.00 from March 4, 2010 to March 6, 2010, a huge drop, but a serious gain for educated traders. The fall was swift. Many traders who were buying the overbooked CCI lost, and those who failed to apply the five percent cash management rule also lost. Therefore, traders need to dominate the oversold CCI. The reverse scenario occurred on December 22, 2010. On that day, IBM was at 145.95, but the CCI 14 period was above +100 (overbought). The CCI 14 period highlighted the zone of resistance between 145.50 and 147.00. As always, as soon as period CCI 14 was over-bought, smart traders highlighted the identified resistance zone and waited for validation. I use the “TSTW SYS 08” in this December 22 case because everything is possible here. The price can go up, down or horizontal. Do not try to guess, and do not be too confident. Instead, be calm and, wait your turn (so to speak). While common traders continued to sell IBM without additional verification, the price broke and retested the zone of resistance from January 6, 2011 to January 11, 2011. The price revolved around January 12, 2011 after retest Of the resistance zone. Again, uneducated traders lost when the price continued the move to the positive side. From January 12, 2011 until January 25, 2011, IBM was growing and the momentum of increase was increasing, although the period of the commodity index indicator 14 was in the overbought zone. Undoubtedly, the price may rise when the ICC is over-bought, and may fall when the indicator is oversold. On January 25, 2011, IBM hit the price level of 161.44, which was a serious move. Many other examples are relevant, but their standard remains the same. This strategy remains valid if you are trading currencies, stocks, options, futures or any other financial instruments.
Price is the most important indicator and number one. You should confirm both the overbought signals and the over-sold commodity channel index signals. Over-bought or oversold CCI signals are not systematic sales signals or purchase signals without additional verification. The ability to “filter out false signals” and understand both the price language and the over-sold and over-sold commodity channel language will allow traders to enjoy their business rather than supporting their business. Hopefully, you find this article helpful and that you will put it into practice in order to avoid losing money. Do not guess the price; Instead, follow it. Trade like pro, or learn to “trade like a pro.”