The Commodity Channel Index is very effective as it helps traders in identifying the strength of a trend, potential overbought/oversold zones and divergences in a stock. The effectiveness of the Commodity Channel Index depends on factors like the ability of a trader to use the CCI, to read charts, current market situation, etc. One of the most common CCI strategies involved identifying overbought and oversold levels of a stock with the help of CCI. The CCI indicates a potential overbought zone whenever it crosses the +100 level. Traders can use this information to exit from their existing bullish trades. They can also look for selling opportunities as the stock is more likely to take a pullback from this level.

You can use the CCI indicator in conjunction with multi-timeframe analysis, price action study, candlestick patterns and other indicators to improve your chart reading skills. Traders can combine the CCI indicator with Moving Average on any charting software. This combination can help a trader in confirming trends and generating crossover signals. For example, CCI crossing above the moving average is a bullish signal and a trader should only look for buying opportunities at this point and vice versa. This scan reveals stocks that are in an uptrend with oversold CCI turning up.

How do Traders use Commodity Channel Index (CCI)?

Divergence trading with the CCI has become my go-to strategy because it identifies momentum shifts before they become obvious in price action. This approach has consistently provided high-probability setups across different market conditions. The Commodity Channel Index (CCI) is calculated by determining the difference cci indicator between the mean price of a security and the average of the means over the period chosen.

Is the CCI Indicator Accurate?

The proven way to trade the CCI indicator is to buy when it moves above -100 after dipping below it and sell when it moves back below +100 after rising above it. The Commodity Channel Index indicator takes a security’s change in price and compares that to its average change in price. CCI’s calculation produces positive and negative values that oscillate above and below a Zero Line. Typically a value of 100 is identified as overbought and a reading of -100 is identified as being oversold. Unfortunately, one of the disadvantages of the CCI indicator is that the way one should be exiting a position is open to interpretation.

• So, the CCI values are somehow confusing and their values can vary on different assets.
• A bearish divergence forms when the security records a higher high and CCI forms a lower high, which shows less upside momentum.
• This represents roughly 140 trading days, which, divided by three, gives a time interval of about 47.
• It is relatively easy to interpret, appears as a sub-chart, and can be used as a reliable extra indicator to find trading signals.

Is the Commodity Channel Index Reliable?

This way, CCI helps traders to find potential overbought and oversold regions in a stock that potentially signal a trend reversal. There are very few technical analysis indicators better than the Commodity Channel Index. Money Flow Index is a very profitable indicator, also Heikin Ashi charts, combined with the rate of change, RSI, and bullish chart patterns. Our testing has proven these indicators to be equally effective, work on many timeframes, and are successful in trading strategies. The Commodity Channel Index (CCI) measures the current price level relative to an average price level over a given period of time. Using this method, CCI can be used to identify overbought and oversold levels.

CCI Trending Strategy

Traders use it to identify overbought and oversold areas and find trading signals. Traders and investors use the commodity channel index to help identify price reversals, price extremes and trend strength. As with most indicators, the CCI should be used in conjunction with other aspects of technical analysis. In this respect, it is similar to bollinger bands, but is presented as an indicator rather than as overbought/oversold levels.

CCI’s readings get relatively higher when the price is far above its average and similarly, it gets relatively lower when the price is far lower below its average. If CCI is above +100, the market might be overbought, which could lead to a price correction. Conversely, if CCI falls below -100, it may indicate an oversold market and potential buying opportunities. Therefore, this use case can help traders time entries and exits more effectively. I have researched and tested many technical analysis indicators, and many, such as the parabolic SAR and moving averages, have underperformed. However, the Commodity Channel Index has proven to be a winning strategy.

Obviously, a 20-day CCI is not suited for long-term signals; chartists should use weekly or monthly charts for those. CCI moved below -100 on January 22 (eight days later) to signal the start of an extended move. The stock bottomed on February 8 and CCI moved above +100 on February 17 (six days later) to signal the start of an extended advance. CCI doesn’t catch the exact top or bottom, but it can help filter out insignificant moves and focus on the larger trend.

The Commodity Channel Index is used in conjunction with different technical tools such as the RSI, Moving Average, Bollinger Bands, Fibonacci Retracement, etc. This helps a trader in increasing the effectiveness of his/her analysis and gain multiple perspectives from a single price chart. The Commodity Channel Index is a versatile indicator which is effectively used in all market types such as stocks, forex, commodities etc. It can also be used across all types of trading time frames from day trading time frames like 15 minutes to longer time frames like daily timeframe. However, it is important to note that CCI is not a standalone indicator.

• The Commodity Channel Index can be combined with other technical indicators to form a more profitable trading strategy.
• When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with.
• A profitable indicator on a 1-minute chart is rare, which makes the CCI indicator profitable and very useful for day traders.
• For example, CCI crossing above the moving average is a bullish signal and a trader should only look for buying opportunities at this point and vice versa.

Think of it as a sophisticated way to identify when an asset is stretched too far from its typical trading range, creating potential opportunities for savvy traders. In this YouTube video, you will learn everything covered in this article, from what the CCI indicator is, how it works and the full Commodity Channel Index trading strategy. I’ll show you step-by-step how to set up CCI on your charts, identify high-probability divergences, and avoid the common mistakes that cost traders money. Yes, our research shows that CCI is a good indicator on 1-minute and daily charts. MFI produced an excellent 53% average success rate versus a long-term buy-and-hold strategy. Our 20-year test of the S&P500 stocks proved CCI outperformed the market by 580%.

Traders can use the CCI indicator to trade different market types like stocks, forex, commodities etc. Initially, the CCI was introduced for the commodities market but over the years it has proven its efficiency across all the market types. CCI indicates a potential trend reversal from bearish to bullish when it crosses above zero. Conversely, it indicates a potential trend reversal from bullish to bearish when it crosses below zero. Traders can increase their chance of success by planning the direction of their trade according to this.

My Trading Journey

Copyright © 2025 FactSet Research Systems Inc.Copyright © 2025, American Bankers Association. SEC fillings and other documents provided by Quartr.© 2025 TradingView, Inc. Stay informed with Strike’s guide on in-depth stock market topic exploration. John Murphy’s Technical Analysis of the Financial Markets has a chapter devoted to momentum oscillators and their various uses. Murphy covers the pros and cons as well as some examples specific to the Commodity Channel Index.

Traders can identify potential breakout and reversal points by overlaying Bollinger Bands on the CCI chart. For example, CCI moving outside of the Bollinger Bands indicates extreme price movements which signal a potential reversal in the market. Though no indicator can provide accurate signals, traders measure in terms of precision.

I tested the reliability of the CCI across all DJ30 and S&P 500 stocks, utilizing 10,600 years of exchange data. Having withstood my rigorous testing, I confirm that CCI provides reliable buy and sell signals. Readings above +100 imply an overbought condition, while readings below −100 imply an oversold condition.

If the CCI breaks above +100, it indicates an uptrend, suggesting the asset may be overbought. If the CCI heads below -100, it indicates a downward trend, signaling a possible oversold asset. Traders also use CCI on a longer time frame to identify the dominant trend of a stock and on the shorter time frame to find pullbacks and take an entry. In the chart below, When CCI reaches the extreme low point on the visible range of time, a bounce is expected.

My favorite approach – CCI divergence trading combined with price action – has consistently delivered results across different markets and conditions. Remember, successful trading isn’t about finding the perfect indicator, but rather understanding how to use your tools in harmony with market dynamics. CCI divergences work across all timeframes, but I’ve found the 4-hour to daily charts provide the best balance between signal reliability and trading frequency. Higher timeframes (daily/weekly) produce more reliable divergences but fewer opportunities. Lower timeframes (15-min to 1-hour) offer more signals but with increased noise.

The CCI oscillator can move above and below the zero line, which serves as a reference point for overbought and oversold conditions. Values above +100 indicate an overbought condition, while values below -100 indicate an oversold condition. If the indicator moves away from these thresholds, the price will likely reverse or pause before continuing its trend. The indicator compares the distance of the price from its statistical mean, calculated using a moving average.