How to use CCI

The chart above uses 30 periods in the CCI calculation. Since the chart is a monthly chart, each new calculation is based on the last 30 months. CCI 20 and 40 periods are also common.

A period refers to the number of price bars that the index includes in its calculation. Price bars can be one-minute, five-minute, daily, weekly, monthly, or any time frame you have available on your charts.

The longer the selected period (counting more bars), the less the indicator moves outside of -100 or +100. Short-term traders prefer a shorter period (in the calculation of a lower price range) because it provides more signals. While long-term traders and investors prefer to use a longer period such as 30 or 40. It is recommended to use a daily or weekly chart for a long time. While short-term traders can apply the indicator on the hourly chart or even the one-minute chart.

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Indicator calculations are automatically performed by charting software or a trading platform. You just need to enter the periods you want to use and choose a time frame for your chart.

When the CCI is above +100, it means that the price is much higher than the average price measured by the index. When the index is below -100, the price is much lower than the average price. Our suggestion to you: What is technical analysis?

A basic CCI strategy is used to track the CCI for a move above +100, which generates buy signals. and movements below -100 that generate sell signals or short-term trades. Sell ​​signals occur, and when a buy signal reappears, reinvest.

The weekly chart above generated a sell signal in 2011 when the CCI broke below -100. This told long-term traders that a possible bearish trend was underway. More active traders can also use this as a short sell signal. This chart shows how a buy signal was created in early 2012 and the long position remains open until the CCI falls below minus 100.5.

 

CCI multi-time frame strategy

CCI can also be used in multiple timeframes. A long-term chart is used to determine the dominant trend. While a short-term chart identifies strengths and entry points to that trend. More active traders usually use a multiple time frame strategy. And they can even be used for day trading. Because “long” and “short” are relative to how long a trader wants their positions to last.

When the CCI reaches above 100+ on your long-term chart, it indicates a bullish trend and you are only looking for buy signals in the short-term. This trend is considered until the long-term CCI falls below -100.

The above figure shows the weekly uptrend since early 2012.

When using the daily chart as a shorter time frame, traders often buy when the CCI drops below -100 and then rises above 100. After the CCI rises above +100 and then drops below +100, it is reasonable to exit the trade. Alternatively, if the long-term CCI trend is down, this indicates a sell signal to exit all long positions.

Explanation of the above figure

The figure above shows three buy signals on the daily chart and two sell signals. No short trades are initiated as the CCI is showing an uptrend on the long-term chart.

When the CCI is below -100 on the long-term chart, only take short sell signals on the short-term chart. The downtrend will continue until the long-term CCI reaches above +100. The chart shows that when the CCI is above +100, you should take a short trade and then go back below +100 on the short-term chart. Traders exit short-term trades after the CCI drops below -100 and then rises above 100. Alternatively, exit all short positions if the long-term CCI trend rises.

Variations and problems of CCI strategies

You can use CCI to set strategy rules. To make the strategy more accurate and softer. For example, make the strategy stricter when using multiple time frames. Only by taking long positions in the shorter time frame when the long term CCI is above +100. This reduces the number of signals but ensures that the overall trend is strong.

Example

Entry and exit rules can also be set in a shorter period of time. For example, if the long-term trend is up, you might let the CCI fall below -100 on the short-term chart and then rise above zero (instead of -100) before buying. This will likely result in a higher payout, but will provide more assurance that the short-term pullback is over and the long-term trend is resuming.

By exiting, you may want to let the price rise above +100 and then drop below zero (instead of +100) before closing the long position. While this could mean holding on to some small pullbacks, it may extend profits in a very strong trend.

In the figures above, long-term weekly and short-term daily charts are used. Other combinations can be used for your needs, such as a daily and hourly chart or a 15-minute and one-minute chart. If you are getting too many or too few trade signals, adjust the CCI period to see if that fixes the problem.

Unfortunately, this strategy is likely to generate several false signals or lose trades when the going gets tough. It is quite possible that the CCI will fluctuate at the signal level, leading to a loss or an uncertain short-term direction. In such cases, trust the first signal until the long-term chart confirms your entry direction. Our suggestion to you: Cryptocurrency