Commodity Channel Index (CCI) Explained

2023-06-05
Summary:

The Commodity Channel Index (CCI) measures the deviation between commodity prices and their average statistical prices. The high value of this index indicates that prices are usually high compared to the average price. Low value indicates that the price is too low.

The Commodity Channel Index (CCI) is a technical indicator that measures the current asset price level relative to the average price level over a given time period. It was created by DonaldLambert, originally designed to identify cyclical changes in commodities. CCI indicators are classified as momentum indicators, which means that CCI can be used to identify overbought and oversold levels.


The Commodity Channel Index (CCI) measures the deviation between commodity prices and their average statistical prices. The high value of this index indicates that prices are usually high compared to the average price. Low value indicates that the price is too low. The commodity channel index can serve as any financial measurement tool other than a vessel, as if named after it.


According to the assumption of designing CCI, in most cases, the random fluctuation range of CCI should be between+100% and -100% in the C-domain (Chaind) Medium. If the position of CCI exceeds 100%, then such fluctuations are considered non random and should trigger interest rate injection. At this point, CCI will provide traders with the opportunity to trade. The specific transaction rules are as follows:

(1) When the CCI rises and exceeds+100%, one should hold a long view and act as a buyer. Then, when the CCI drops and falls below, it should sell long positions in the short term;

(2) When CCl drops below -100%, one should hold a short view and act as a sell. Then, when the CCI rises and trades at -100%, go long, cover short, or buy.


There is a problem with selecting parameters when using CCI, and we need to find the most effective parameter n. In fact, there is a problem with technical indicators that involve parameters. According to American practice, the selection of parameters depends on the actual performance of each parameter in history. That is, the record of profits and losses over a certain period of time in the past. Traders can choose the parameters they think are good.

What is the Commodity Channel Indicator (CCI)? Detailed explanation of CCI indicators

How the Commodity Channel Index (CCI) Works

The Commodity Channel Index (CCI) measures the current price level relative to the average price level during a given time period.


The CCI indicator fluctuates above and below the zero level.


When prices are much higher than the average, CCI tends to rise relatively.


When prices are far below the average level, CCI tends to decline relatively.


Using this method, CCI can be used to identify overbought and oversold levels of asset prices.


The percentage of CCI values between+100 and -100 will depend on the event period used.


The smaller the percentage of shorter period CCI values between+100 and -100, the greater the volatility.


The more K-line cycles used to calculate CCI, the higher the percentage of values between+100 and -100.


Lambert's trading guidelines for CCI focus on fluctuations above+100 and below -100 to generate buy and sell signals.


Because approximately 70% to 80% of CCI values are between+100 and -100, buy or sell signals only occur within 20% to 30% of the time.


buy signal

When the CCI moves above+100, the price is considered to have entered a strong upward trend and a buying signal is given.

When the CCI returns to below+100, the position should be closed with multiple orders.


Sell Signal

When the CCI moves below -100, the price is considered to be in a strong downward trend and a selling signal is given.

When the CCI returns to above -100, the short order should be closed.


General analysis and usage methods of CCI indicators

There are two basic techniques for using this indicator:

Identify deviations

When the price reaches a new maximum value, a deviation occurs, and the commodity channel index will not exceed the previous maximum value. This typical deviation usually occurs with price correction.


As an indicator of excessive buying and selling

The commodity channel index is usually+-Changes within the range of 100. A value above+100 indicates overbuying (with the possibility of a correction decrease), and a value below -100 indicates overselling (with the possibility of a correction increase)


Its main function is to indicate overbought and oversold information, and it is best to trade when it reverses:

When CCI metrics> At 100, it indicates an overbought situation. When it crosses 100 from top to bottom, it can be short (sold)

When CCI indicator< At 100, it indicates an oversold situation. When it crosses 100 from bottom to top, it can buy more (buy)


If the position has already been opened, a ± 75 value line should be used as a reference to analyze whether to close the position

When short selling, when the CCI indicator crosses+75, 0, -75, and then crosses any line again, the position is closed

When doing long time (buying), when the CCI indicator crosses -75, 0,+75, and then crosses any line again, the position is closed


【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.

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