This trading strategy best results for Forex trading , but it is not recommended for shares or cryptocurrency trading since different instruments tend to have different price action dynamics. Although it was originally developed for use in the commodities markets, it can be used just as well with equities and with currencies.
Top 3 CCI Trading Strategies for Consistent Returns
Professional traders use the CCI to let them know when a trend has strengthened or weakened significantly. Once the indicator is above that level is when a bullish trend is really getting started, and when serious profits are able to be extracted from the markets. It is this second move that is bought and that brings the best chance of profits. However there are some additional criteria that can be added to make the CCI trading strategy more robust and profitable in the long run.
This increases the probability of the signal being valid. Another way to improve the trading strategy is to use multiple time frames. In this case the trend is first established on a weekly or monthly chart and then traders use short time frames to trade, but only trade in the direction of the long term trend.
How to Trade Using the Commodity Channel Index (CCI)
The Commodity Channel Index is a reliable and effective indicator, but it has its disadvantages as well. More specifically, it is good for identifying market entry points especially in conjunction with other indicators , but it is better to use traditional signals for closing the positions. The thing is that when a strong trend is present, CCI moves quite quickly from the overbought to the oversold zone and vice versa, and if this is perceived as a reversal signal, most of the profit from the original position can be lost.
Trading in financial markets puts your capital at risk. It is recommended to accurately follow the money management rules and always set Stop Losses in order to reduce risks.
Intermediate: Trading Strategy
We recommend you to visit our trading for beginners section for more articles on how to trade Forex and CFDs. Still don't have an Account? Sign Up Now. CCI Trading Strategies. What is Arbitrage? Detecting either market condition does not mean that there will be price reversal and that you should immediately open the associated position.
The reason is that in times of strong trends, the overbought or oversold conditions can persist for an undefined amount of time, such as days, weeks, etc.
You can see that at the red areas the CCI values are below indicating an oversold market condition which would mean that the trend will reverse, but the price continued its fall. Eventually, the trend does reverses and start moving upwards, but trading based on the CCI oversold signals could have been misleading because of the occurrence of whipsaw. To filter out false signals, some traders are looking for potential bullish and bearish divergences between the price action and the CCI movement.
Traders may setup a commodity channel index trading strategy using the divergence signals because they point toward potential trend reversal as the momentum is not in line with the price movement. Hence, bullish divergence is evident when the price makes a lower low while CCI forms a higher low. A bearish divergence is formed when the price makes a higher high, but the CCI makes a lower high.
A word of caution here would also be that traders should confirm their signals using other indicators, especially when the price moves in a strong trend because the signals can also be misleading. Do not forget that the CCI can be a practical indicator which can provide valid trading signals as long as it is used correctly. Therefore, you should adapt the CCI setting, such as the number of periods and the trading strategy to eliminate potential losses, which may arise from false signals. Bonus withdrawal can be a subject to additional commission. We can recommend Capital. Learn to trade Trading guides.
What is the Commodity Channel Index?
What Is The Commodity Channel Index Formula?
How to read the Commodity channel index indicator When plotting the commodity channel index, you can find it below the price chart as a line oscillating within the box. It is mandatory to procure user consent prior to running these cookies on your website. Leave a Reply Cancel reply Your email address will not be published. Leave this field empty.
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