Индикатор Форекс Commodity Channel Index
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4. The result is scaled using a reduction factor of
The reduction factor is also called the “Lambert constant”. Its value is constant and is designed to fit 2/3 of the absolute deviation values in the interval [, ].
Finally, the CCI formula looks like this:
Look at the EURUSD price chart, the timeframe is M5. Numbers mark strong overbought and oversold levels of + and An entry signal is still a Price Action pattern.
In the first case, the CCI indicator reached level +, and there is a Pinbar in the price chart. A sell trade is entered.
In the second case, the CCI indicator reaches level - , and there is a Bullish Engulfing pattern in the chart. A buy trade is entered.
In the third case, the CCI reaches the overbought levels of +, and a Pinbar emerges in the price chart. A sell position is opened.
In the fourth case, the CCI reaches level +, and a bearish engulfing pattern appears in the price chart. Again, a sell trade is entered.
A stop loss is always set according to the Price Action pattern rules. A take profit is set at a distance of three times longer than the stop loss. You can also set a take profit at a strong resistance (for a purchase) or support (for a sale) level. Another option to exit a trade is when the CCI indicator reaches level + or , depending on the trade direction (buy or sell).
Thus, based on the above example, one could make a profit from four trades entered based on the CCI signals to identify overbought and oversold areas.
As soon as the index crossed the 0 line from the bottom up, and the trading day closed the price with a gain, the market continued to grow.
I want to emphasize once again that a trader should identify the trend in longer timeframes (D1, W1) to trade based on the signals described above. The trend can be identified using general techniques, such as key highs and lows in the chart, or using other technical analysis tools.
An oscillator is not meant to define trends.
If you trade each situation when the CCI crosse level 0 upside or downside, you will face a situation when the market movement is rather limited, or a stop loss works out.
So, the average typical price on October 21 is From this value, you need to subtract the typical price on October 21st. - = To calculate the absolute deviation, we need to take the value modulo, i.e.,
Next, we subtract the typical price value for October 20 from the average typical price of October 21, - = -0, We take the absolute values, and here it is
Next, we subtract the typical price for October 19 from the average typical price of October 21, - = -0, We take the modulo value, as usual; it is
We do the same procedure for each trading day, including the very beginning of September 26,
When we have calculated the absolute deviation of the average typical price from the typical prices for each day, the values obtained separately must be added and divided by The result is the mean absolute deviation. I will not give the whole calculation and limit myself only to the final value -
Next, you need to scale the mean absolute deviation by multiplying it by the Lambert constant of , * =
Then you need to subtract from the typical price on October 21 the value of the average typical price for October - =
And at the last stage, we divide the value of by the scaled mean absolute deviation: / =
Thus, we got the CCI value at the close on October 21, , for the EUR/USD pair equal to To check, you can impose CCI on the price chart in the trading platform and see its value on October
As can be seen from the above example, the calculation of CCI is not complicated but requires numerous actions that are best left to a computer, indicators, and specialized software to quickly obtain the necessary information.
CCI Trading Strategies
The CCI trading strategy is in many ways similar to strategies based on other oscillators. When working with CCI, a trader's attention is mainly focused on the indicator location relative to levels 0, , +, , and +
Traders like the CCI commodity channel index because it is a versatile indicator that is relatively easy to interpret. Both a beginner and a professional trader can profitably apply the CCI trading strategy, so I strongly recommend that you familiarize yourself with at least the basic strategies below, and then decide for yourself whether this style of trading suits you or not.
Potential Buy & Sell Signals
If we consider the basic signals to buy or sell sent by the CCI indicator, first of all, it should be noted that the indicator is an oscillator. Therefore, the tool itself does not provide any information about the global trend. If you trade each signal, you won’t add up to your initial investment much.
Hence the following idea arises: an additional tool is needed to determine the global trend in the market to minimize the number of unprofitable signals.
Other indicators, such as the Moving Average, can be used to define the trend. However, I believe it is best to stick to the Dow Theory and identify the trend using key highs and lows in the daily chart.
When you have an idea of the primary trend, trading with the CCI indicator won’t be difficult. Next, you should look at buy and sell signals provided by the CCI indicator, having identified the general trend in the market using key highs and lows in the price chart.
Buy signals
A signal to buy is sent when the indicator line crosses level 0 from the bottom up. At the same time, the general trend for the instrument should be up.
3. The dispersion is calculated. Differently put, this is the mean absolute deviation, which allows you to identify overbought or oversold conditions of the market.
The mean absolute deviation is the arithmetic average of the absolute deviation of a typical price from its moving average over n periods, calculated by the formula:
As you can see, most of the CCI values (according to Donald Lambert, 70 - 80%) stay within the limits of and + level lines. The rest 30 - 20% of the CCI values reach beyond the level lines indicating extremes. With CCI being an unbounded oscillator, these extreme values can continue to grow and are not supposed to reverse having crossed the level lines. Thus, the prices reaching beyond the level lines can signal both an emerging of a trend or its reversal. That's why CCI requires to be used in conjunction with additional technical analysis tools to confirm interpretation of its signals.
Note that CCI is used by many traders as a stand-alone oscillator providing trading signals on its own (read later in the article).
Please remember that the CCI oscillator uses the historical data for its calculation and all the information it provides belongs to the past. A trader can only suppose that the past tendencies will continue to develop in the same way for some time in the future and try to use the information appropriately.
To apply a CCI oscillator to a chart, a trader needs to follow the procedure common to all Marketscope indicators. For more information, see the Add Indicator article.
During the procedure, a trader can customize an oscillator by specifying its parameters in the Properties dialog box. For more information, see the Change Indicator Properties article.
The parameters fall into three groups:
- Calculation - the parameters needed to calculate an indicator's prices.
- Style and Appearance - the parameters needed to specify the way an indicator appears on a chart.
- Levels - the parameters needed to specify the values of overbought and oversold level lines (as well as the way they appear on a chart).
The CCI oscillator has only one Calculation parameter - Number of periods. The parameter allows specifying the number of periods, over which the oscillator is to be calculated. The possible values are from 2 through 1, The default value is 14. The smaller the number is, the more sensitive the oscillator becomes. The greater the number is, the less sensitive the oscillator becomes. Traders choose the parameter's value in accordance with their need of the level of sensitivity of the oscillator. The recommended and most commonly used value is the default one - 14.
The CCI oscillator has the following Levels parameters:
- Overbought level - the parameter allows to specify at what level the + line is to be drawn. The possible values are from -1, through 1, The default value is . The greater the value of the Overbought level parameter is, the higher the threshold at which an instrument is considered to be overbought, and the less signals the oscillator produces. The recommended (Donald Lambert's default) and most commonly used value is .
- Oversold level - the parameter allows to specify at what level the line is to be drawn. The possible values are from -1, through 1, The default value is . The smaller the value of the Oversold level parameter is, the lower the threshold at which an instrument is considered to be oversold, and the fewer signals the oscillator produces. The recommended (Donald Lambert's default) and most commonly used value is .
Please note that you can specify the width, style, and color of the two lines by selecting the values of your choice under the same Levels heading.
Note also that the zero line is always black and its color cannot be modified.
On the following picture, you can see how CCI oscillators of different Number of periods values with level lines of different Overbought level and Oversold level values, colors, styles, and widths look like on a chart.
The parameters are available on the Parameters tab of the CCI Properties dialog box under the Calculation (Number of periods) and Levels (Overbought level and Oversold level) headings.
When a CCI oscillator is drawn on a chart, a trader can analyze its information and try to interpret it correctly. According to Donald Lambert, CCI produces trading signals only when the oscillator's line reaches either above the Overbought level line or below the Oversold level line. The main signals are:
- Level line crossing
- The oscillator's line rising above the Overbought level line can be a warning of an uptrend beginning and the need to consider opening of Buy positions. Do not forget to close the opened Buy positions if the oscillator's line reverts and crosses back below the Overbought level line.
- The oscillator's line dropping below the Oversold level line can be a warning of a downtrend beginning and the need to consider opening of Sell positions. Do not forget to close the opened Sell positions if the oscillator's line reverts and crosses back above the Oversold level line.
On the following picture, you can see examples of the Level line crossing signals.
Note that CCI produces multiple Level line crossing signals, and many of them are premature. One of the solutions of the problem is using of other technical analysis tools in conjunction with the oscillator, such as trend indicators that either confirm or deny a change in the trend direction. - Overbought and Oversold Levels
Though the CCI oscillator is not range bound, it is also useful for identifying whether an instrument is overbought or oversold. For this purpose, Lambert suggests to set the Overbought Level at +, and the Oversold Level at An instrument is overbought when CCI exceeds the Overbought level, and it is oversold when the oscillator's line on the way down exceeds the Oversold level.
The scenarios produce the following trading signals: - The CCI oscillator's line rising above the Overbought level can be a warning of a possible trend reversal downwards and the need to consider closing of Buy positions and opening of Sell ones.
- The CCI oscillator's line dropping below the Oversold level can be a warning of a possible trend reversal upwards and the need to consider closing of Sell positions and opening of Buy ones. On the following picture, you can see examples of the Overbought and Oversold signals.
Note: An instrument can stay overbought or oversold for a long period of time. Therefore, if CCI crosses the Overbought or Oversold level, do not undertake immediate actions until the oscillator's line crosses the level line in the opposite direction. - Divergence
Divergence between the market price movement and the oscillator directions is a very strong signal of a trend reversal. The divergences can be of two types: - Bullish divergence occurs when the CCI oscillator after having reached or crossed the Oversold level starts increasing, whereas the market price movement remains flat or decreasing.
- Bearish divergence occurs when the CCI oscillator after having reached or crossed the Overbought level starts decreasing whereas the market price movement remains flat or increasing.
On the following picture, you can see examples of the Divergence signals.
Please note that divergences are often misleading in a strong price trend: bullish (or bearish) divergences can occur in a strong downtrend (or uptrend) and yet the strong downtrend (or uptrend) continues.
The CCI oscillator's values are calculated automatically using the following formulas:
CCI = (Typical Price - period SMA of TP) / ( x Mean Deviation)
CCI = TP - MVAN / ( x MDN)
where:
CCI - is the Commodity Channel Index value of the period being calculated.
TP - is the Typical ((High + Low + Close)/3) price of the current period.
MVA - is the Simple Moving Average value of Typical prices of the current period calculated over N number of periods.
- is Lambert's constant (Lambert set the constant at to ensure that approximately 70 to 80 percent of CCI values would fall between the and + level lines.
MD - is the Mean Deviation of Typical prices of the current period calculated over N number of periods. To calculate the Mean Deviation, first, subtract the most recent N - period average of the Typical price from each period's Typical price. Second, take the absolute values of these numbers. Third, sum the absolute values. Fourth, divide by the total number of periods (N).
N - is the number of periods, over which the MVA and MD values are calculated (both are set by the Number of periods parameter).