When the CCI indicator is high it shows that forex price is unusually high compared to the its average. When the CCI indicator is low it shows that forex price is unusually low compared to the its average. CCI indicator values below indicate an oversold conditions and an impending forex price correction.
What is the Commodity Channel Index?
If the CCI indicator is oversold, levels below , then there is a pending forex price correction. The CCI indicator buy signal should be combined with a forex price trend line break signal to confirm the buy signal. This chart demonstrates how in early a buy signal was triggered, and the long position stays open until the CCI moves below The CCI can also be used on multiple timeframes. A long-term chart is used to establish the dominant trend, while a short-term chart establishing pullbacks and entry points into that trend.
Trade Forex With CCI - Full Trader's Guide to Commodities Channel Index
More active traders commonly use a multiple timeframe strategy, and one can even be used for day trading , as the "long term" and "short term" is relative to how long a trader wants their positions to last. The trend is considered up until the longer-term CCI dips below The figure above shows a weekly uptrend since early When using a daily chart as the shorter timeframe, traders often buy when the CCI dips below and then rallies back above Alternatively, if the trend on the longer-term CCI turns down, that indicates a sell signal to exit all long positions.
The figure above shows three buy signals on the daily chart and two sell signals. No short trades are initiated, since the CCI on the long-term chart shows an uptrend. When the CCI is below on the longer-term chart, only take short sale signals on the shorter-term chart.
Traders would then exit the short trade once the CCI moves below and then rallies back above Alternatively, if the trend on the longer-term CCI turns up, exit all short positions. You can use CCI to adjust the strategy rules to make the strategy more stringent or lenient. This reduces the number of signals but ensures the overall trend is strong. Entry and exit rules on the shorter timeframe can also be adjusted.
For example, if the longer-term trend is up, you may allow the CCI on the shorter-term chart to dip below and then rally back above zero instead of before buying. This will likely result in a paying a higher price but offers more assurance that the short-term pullback is over and the longer-term trend is resuming. While this could mean holding through some small pullbacks, it may increase profits during a very strong trend.
The figures above use a weekly long-term and daily short-term chart.
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Other combinations can be used to suit your needs, such as a daily and hourly chart or a minute and one-minute chart. If you're getting too many or too few trade signals , adjust the period of the CCI to see if this corrects the issue. Unfortunately, the strategy is likely to produce multiple false signals or losing trades when conditions turn choppy. It is quite possible that the CCI may fluctuate across a signal level, resulting in losses or unclear short-term direction.
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In such cases, trust the first signal as long as the longer-term chart confirms your entry direction. The strategy does not include a stop-loss , although it is recommended to have a built-in cap on risk to a certain extent. When buying, a stop-loss can be placed below the recent swing low ; when shorting, a stop-loss can be placed above the recent swing high. Ken Wood. Traders Press, Other indicators may be required to confirm signals send by CCI. NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
How Forex Traders Use CCI to Trade GBPUSD
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
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Commodity Channel Index: Tips, Tricks and How To’s
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