The Commodity Channel Index (CCI), one of the indicators that receive the most attention, is known to allow us to see the direction of the financial asset subject to trade and see the overbought or oversold zones.
Though the CCI indicator was created by Donald Lamber in the 1980s to achieve more successful results in the transactions in the Emtia markets, today, it is used for expectations regarding all the financial assets.
While the levels of -100 and +100 are important numbers taken as reference, the related indicator was created by taking the 14-period moving average into account.
While the levels of -100 and +100 and 14-period moving average that take place in the indicator are the indicator’s standard terms, they have the flexibility to be adjusted so that they become compatible with the asset price. In this revision, the most favored short-term average is the CCI value calculated with 9, 11, and 22-period moving averages. Figures outside the range of 5 – 25 days shouldn’t be used.
One of the most essential things to be aware of in the CC indicator is that it has the oscillator characteristics that help us see the trend expectation for the asset as well as the overbought and oversold areas. This means one indicator can serve in two categories (Trend & Oscillator).
To access the Commodity Channel Index indicator from the MetaTrader platform, you can respectively click on ToolBar, Insert, Indicator, and Oscillator.
Before adding it to the platform, you can revise or make the 14 figure shared as a standard in line with how many averages of prices must be taken and the -100 and +100 reference levels in the “Levels” section the return of which needs to be followed suitable to the financial asset that is to be traded from the “Parameters” section whenever you’d like. However, in the training, such change won’t be made and the standard pattern will be followed.
The Positive Or Negative Condition of CCI Indicator!
One of the most important things to pay attention to regarding the CCI indicator while making a trade decision for a financial asset is the reaction that will occur depending on the levels of -100 and +100. If the CCI indicator is above the +100 level, it is OVERBOUGHT. If it is below the -100 level, it is OVERSOLD. A financial asset being in the overbought or oversold zone might be a signal for a possible return. However, you shouldn’t hurry for a return like this solely based on it.
*** When the CCI indicator returns from the oversold zone and goes above level -100 or makes a return from level -100 or its vicinity, the positive pricing behavior regarding the asset might grow stronger. With this, a possible exit request towards the reference level of +100 might keep the agenda busy.
*** When the CCI indicator returns from the overbought zone and goes below level +100 or makes a return from level +100 or its vicinity, the negative pricing behavior regarding the asset might grow stronger. With this, a possible regression request towards the reference level of -100 might keep the agenda busy.
*** It is important to take part in trend-oriented pricing behaviors to increase the chances of success in the trade transactions regarding the CCI indicator and to manage the risk. Even though the sell signal in the uptrend and the buy signal in the downtrend is on the agenda with its possibility to provide important advantage fluctuations, it should not be forgotten that it has an anti-trend position, and the current risk coefficient increases.
CCI – Divergence!
The disparity between the asset pricing and the Oscillator indicator, which helps us see the overbought and overbought zones might be on the agenda in some periods.
The concept emphasized as divergence is explained as the positive and negative signals according to -100 and +100 reference levels not being supported by the asset price.
Thus, for the times where it is accepted as Positive or Negative incompatibility, our main focus point is asset price. The related disparity removes the buy-sell signal until the price and the indicator are compatible.
If the Oscillator indicators which help us see the overbought and oversold zones, the incompatibility times will affect trade performance negatively. Thus, no indicator should be used alone.
As you can see from the graph, the CCI indicator gives a negative signal with the return trend it started from the peaks, yet, we see that the pricing behavior is not the same, meaning there is an inconsistent course. After the inconsistency continues for a certain time, the negative view in the pricing behavior and the negative expectation for the indicator acts in harmony.