CCI indicator: what is it and how to use it? Combination of indicators CCI and MACD in trading on the Forex market

ITC, or commodity channel index (commoditychannel index) was developed by Donald Lambert, a technical analyst who originally published an article about this in the journal Commodities (now Futures) in 1980. Despite its name, CCI can be used in any market. And not only for the goods. The indicator was originally designed to determine long-term trend changes, but was adapted by traders for use on a time frame. With this tool, two strategies are created. They can be successfully used by both investors and traders.

The CCI indicator compares the current price with the averagefor a certain period of time. The indicator fluctuates above or below zero, passing to a positive or negative scale. At that time, most values, approximately 75%, will be between -100 and +100. About 25% of them will go beyond this range, which indicates a large drop or increase in the price movement.

CCI indicator: description and essence

Like most oscillators, the CCI indicator wasIt is designed to determine overbought and oversold levels. He does this by measuring the relationship between price and the moving average (MA). Or, more specifically, it shows normal deviations from this mean. Thus, ITK is a classic oscillator, complementing the MACD-indicator. How to use this diagram most correctly?

One prerequisite for calculating the CCIis the definition of a time interval that plays a key role in improving the accuracy of the ITC. Since it tries to predict a cycle using moving averages, the more the moving averages (on average by the number of days) are adjusted to the time period, the more accurate the indicator will be. This rule works for most of such oscillators, as MACD-indicator. How to use its indicators in trading, you can learn when studying the main "Forex" strategy.

How do I configure the oscillator?

Thus, although most traders use the default value of 20 as the time interval for calculating the CCI, a more accurate period reduces the appearance of false signals.

The diagram most often uses 30 periods atcalculation of CCI. Since the graph displays monthly data, each new calculation is based on data from the last thirty months. ITC 20 and 40 periods are also very common. The interval refers to those parameters of the price charts, which the indicator will necessarily include in its calculation. Columns with price tags can be configured to display indicators for 60 seconds, five minutes, daily, weekly, monthly. Or at any time within the limits available on the charts.

CCI indicator: how to use it?

The longer the selected period (the more bars incalculation), the less often the indicator will go beyond -100 or +100. Short-term traders prefer a shorter interval (less price scales in calculation). It will provide more signals, while longer-term market participants and investors prefer a longer period (such as 30 or 40). Use daily or weekly chart is recommended for long-term trading. Simultaneously, short-term transactions can be applied by the indicator on the hourly chart or even minute.

Calculations of the indicator are carried out automatically withusing specialized software or charting trading platform. You only need to enter the number of periods that you want to use, and select the time frame for your chart. For example, 4-hour, daily, weekly, etc. The main trading platforms and tools for the trader, including Thinkorswim and MetaTrader, perfectly support the operation of the CCI indicator. When it is above +100, the price is set much above average. When the indicator is below -100, the cost is much lower than the main indicator.

Basic Strategy

The basic ITC strategy is constantly monitoredCCI indicator. The setting should provide advancement above +100 and generate purchase signals. And also strive to move below -100 in order to activate sales. Investors can accept purchase signals when they exit. And then reinvest when this signal is repeated. ITC can also be used in several time periods. A long-term chart is used to establish a dominant trend, while a short-term chart is used to establish pullbacks and entry points to this trend. This strategy helps trade more active traders. And it can even be used for day sale both in the long term and for a short time.

Ratio of market movements

By analogy with the basic strategy, when CCImoves above +100 on your long-term chart and the trend goes up, you need to look at the signal sales at a shorter time. The trend is considered until the long-term CCI indicator falls below -100. If you use the daily chart as a short-term chart, you can make deals when the CCI drops below -100. And then sell when the indicator exceeds this mark. To trade on Forex was successful, get out of it as soon as CCI rises above +100. Then go back when this index falls. Alternatively, if the trend on the long-term CCI is turned down, adjust the output to all long positions.

When the CCI is below -100 on a long-termdiagram, take only short sell signals on a short-term chart. The downtrend is valid over the long term CCI, when the level rises above +100. You can configure certain rules in this strategy. For example, if you use several time frames, you can make the trading plan more stringent, only taking long positions for shorter periods when the long-term CCI is above +100. This will reduce the number of signals, but will provide a general trend.

Desirable advanced settings

Entry and exit rules for shorter periodscan also be adjusted. For example, if a long-term trend goes up, you can set the CCI indicator for a shorter period to drop below -100. And then go back above zero (instead of -100) before buying. This is likely to lead to a higher price. But will offer more guarantees that the short-term rollback is over and the longer-term trend will resume. After the exit, you can wait until the price rises above +100. Then it drops below zero (instead of +100) before closing long positions. Despite the fact that trade in this case will be implemented through several small adjustments in the schedule, this move can increase profits during a very strong trend.

disadvantages

Unfortunately, this strategy can producea few false signals or push to make losing trades when the conditions are unstable. It is possible that the CCI indicator may malfunction in the signal level. And this leads to losses or an unclear short-term direction. In such cases, you can trust the first signal until the long-term graph confirms your direction of entry. The strategy does not include a stop-loss, the use of which is highly recommended. It is he who reduces the risk to a certain amount. However, when buying a stop-loss in this system it can be placed below the recent minimum of fluctuation.

Where can I use the oscillator?

CCI can be used in any market. One time frame can be used successfully at all times. A trade with two will provide more signals. Especially this strategy is preferable for active traders. Use CCI on the long chart to establish a dominant trend. And at the same time, configure it for a shorter period of time to isolate kickbacks and generate trading signals.

It should be remembered that strategies and indicatorswork not without errors, like all without exception tools for the trader. Adjustments to the strategy criteria and the indicator periods can provide better performance. Although all systems may be prone to incorrect user orientation, which is why unprofitable transactions occur. Be sure to note that the implementation of the strategy does not support the stop-loss in its usual form. Therefore, you should definitely test this trade model with CCI: how much it is profitable in the market at the moment. It is also important to study possible dates and periods before use.