Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

RichardCox

Understanding the CCI Oscillator

Recommended Posts

The CCI oscillator (the Commodity Channel Index) was devised by Donald Lambert and started to gain popularity in markets during the 1980s as a means for identifying potential entry points for trading positions. This is accomplished by giving an assessment of whether or not a certain asset is overbought or oversold and while it might appear that this trading tool is specifically designed for the commodities markets (given its name), the CCI has grown in popularity amongst forex traders in recent years. Traditionally, the CCI has been used as part of trading systems that look to capitalize on breakout, trends, or range bound strategies but the CCI can also be used with retracements as a way of improving entry levels, so here we will look at some of the characteristics and potential strategy methods that capitalize on the strengths of the oscillator.

 

Oscillator Properties

 

To get a better sense of the mechanics of the CCI, we should first understand that it is an oscillator, which is a tool used in technical analysis that operates between two extreme values to display overbought and oversold conditions that are based on cyclical trend indicators. Oscillators tend to be most effective when clear trend movements cannot be identified (as with sideways, or range bound trading), with bullish reversals likely to come when prices are oversold (hitting the lower end of the oscillator range) and bearish reversals likely to come when prices become overbought (hitting the upper end of the oscillator range). Other commonly used oscillators include the RSI, Stochastics, and ROC.

 

Properties of the CCI

 

The CCI is essentially designed to measure the relative differences between a currency’s price (P), a moving average of that price (A), and the deviations from that moving average that are typically seen (D). This can be expressed in the following equation:

 

CCI = P - A / 0.015*D

 

The similarities with the CCI tool and other common oscillators come mostly from their ability to define oversold and overbought levels. In the CCI, these are seen below the -100 area and above the +100 area but in most cases (70 to 80 percent of the time) CCI values will fall between these range extremes. Because of this tendency, there is a greater probability that prices will reverse once CCI values reach overbought/oversold territory. Trades can be based on these events because of the high likelihood that the underlying prices will be forced to move in a corrective fashion and return to levels that are more representative of the asset’s true value.

 

Using CCI for Retracement Positions

 

Since the CCI tool displays these characteristics, it should be remembered that the oscillator can be used in ways that vary from the more common approaches. Breakout strategies,for example, are often criticized because of their inability to allow traders to “buy low, sell high” and this criticism can be extended to CCI usage as it fails to capitalize on the true strength of the oscillator. Alternatively, retracement strategies offer something of a solution for this, as the dominant trend is generally clear and entry levels are preferable (lower prices for long positions, higher prices for short positions). Attached is a sample structure for a long position.

 

In this structure, there are a few supportive arguments for a long position. In the CCI reading, we can see that prices have become oversold within the dominant uptrend. The CCI level is significant in this case because it is an area that has seen sharp increases in the past. Price activity itself is also clinging to the confluence of moving averages, as well as hitting the 38.2% retracement of the larger rally.

 

With the combination of these factors showing agreement, traders could initiate long positions, in the low 0.6600s, rather than waiting for a break of previous resistance above, allowing the trader to capture a much larger portion of the move. Of course, the reverse scenario would be seen for bearish positions but a similar set of rules would be in place in order to use the true strengths of the CCI oscillator and to position trade entries at more preferable levels.

CCI.png.3cc99d46b35e275aa1306d801cfa1922.png

Share this post


Link to post
Share on other sites

Developed by Donald Lambert and featured in Commodities magazine in 1980, the Commodity Channel Index (CCI) is a versatile indicator that can be used to identify a new trend or warn of extreme conditions. Lambert originally developed CCI to identify cyclical turns in commodities, but the indicator can successfully applied to indices, ETFs, stocks and other securities. In general, CCI measures the current price level relative to an average price level over a given period of time. CCI is relatively high when prices are far above their average. CCI is relatively low when prices are far below their average. In this manner, CCI can be used to identify overbought and oversold levels.

 

Calculation:

 

CCI = (Typical Price - 20-period SMA of TP) / (.015 x Mean Deviation)

 

Typical Price (TP) = (High + Low + Close)/3

 

Constant = .015

 

There are four steps to calculating the Mean Deviation. First, subtract

the most recent 20-period average of the typical price from each period's

typical price. Second, take the absolute values of these numbers. Third,

sum the absolute values. Fourth, divide by the total number of periods (20).

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • AMZN Amazon stock, nice buying at the 187.26 triple+ support area at https://stockconsultant.com/?AMZN
    • DELL Dell Technologies stock, good day moving higher off the 90.99 double support area, from Stocks to Watch at https://stockconsultant.com/?DELL
    • MCK Mckesson stock, nice trend and continuation breakout at https://stockconsultant.com/?MCK
    • lmfx just officially launched their own LMGX token, Im planning to grab a couple of hundred and maybe have the option to stake them. 
    • Date: 2nd April 2025.   Market on Edge: Tariff Announcement and Volatility Ahead!   The US economic and employment data continues to deteriorate with the job vacancies figures dropping to a 5-month low. In addition to this, the IMS Manufacturing PMI also fell below expectations. However, both the US Dollar and Gold declined simultaneously following the release of the two figures, an uncommon occurrence in the market. Traders expect a key factor to be today’s ‘liberation day’ where the US will impose tariffs on imports. USDJPY - Traders Await Tariff Confirmation! Traders looking to determine how the USDJPY will look today will find it difficult to determine until the US confirms its tariff plan. Today is the day when Trump previously stated he would finalize and announce his tariff plan. The administration has not yet released the policy, but investors expect it to be the most expansionary in a century. President Trump is due to speak at 20:00 GMT. On HFM's Calendar the speech is stated as "US Liberation Day Tariff Announcement". Currently, analysts are expecting Trump’s Tariff Plan to impose tariffs on the EU, chips and pharmaceuticals later today as well as reciprocal tariffs. Economists have a good idea of how these tariffs may take effect, but reciprocal tariffs are still unspecified. In addition to this, 25% tariffs on the car industry will start tomorrow. The tariffs on the foreign cars industry are a factor which will particularly impact Japan. Although, traders should note that this is what is expected and is not yet finalised. Last week, President Trump stated that he would implement retaliatory tariffs but allow exemptions for certain US trade partners. Treasury Secretary Mr Bessent and National Economic Council Director Mr Hassett suggested that the restrictions would primarily target 15 countries responsible for the bulk of the US trade deficit. However, yesterday, Trump contradicted these statements, asserting that additional duties would be imposed on any country that has implemented similar measures against US products. The day’s volatility will depend on which route the US administration takes. The harshness of the policy will influence both the Japanese Yen as well as the US Dollar.   USDJPY 5-Minute Chart   US Economic and Employment Data The JOLT Job Vacancies figure fell below expectations and is lower than the previous month’s figure. The JOLT Job Vacancies read 7.57 million whereas the average of the past 6 months is 7.78 million. The ISM Manufacturing Index also fell below the key level of 50.00 and was 5 points lower than what analysts were expecting. The data is negative for the US Dollar, particularly as the latest release applies more pressure on the Federal Reserve to cut interest rates. However, this is unlikely to happen if the trade policy ignites higher and stickier inflation. In the Bank of Japan’s Governor's latest speech, Mr Ueda said that the tariffs are likely to trigger higher inflation. USDJPY Technical Analysis Currently, the Japanese Yen Index is the worst performing of the day while the US Dollar Index is more or less unchanged. However, this is something traders will continue to monitor as the EU session starts. In the 2-hour timeframe, the USDJPY is trading at the neutral level below the 75-bar EMA and 100-bar SMA. The RSI and MACD is also at the neutral level meaning traders should be open to price movements in either direction. On the smaller timeframes, such as the 5-minute timeframe, there is a slight bias towards a bullish outcome. However, this is only likely if the latest bearish swing does not drop below the 200-Bar SMA.     The key resistant level can be seen at 150.262 and the support level at 149.115. Breakout levels are at 149.988 and 149.674. Key Takeaway Points: Job vacancies hit a five-month low, and the ISM Manufacturing PMI missed expectations, adding pressure on the Federal Reserve regarding interest rate decisions. Traders await confirmation on Trump’s tariff policy, which is expected to impact the EU, chips, pharmaceuticals, and foreign car industries. The severity of the tariffs will influence both the JPY and the USD, with traders waiting for final policy details. The Japanese Yen Index is the worst index of the day while the US Dollar Index is unchanged. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.