The CCI is a technical indicator developed by the North American trader Donald Lambert in 1980. Seeking to identify the cyclical movements of the commodities he operated, Lambert developed this indicator that is well known and widely used worldwide.
The Commodity Channel Index is a momentum oscillator that measures the variations of an instrument from its statistical average. Its application is very wide and can be used in several different strategies, both in trends, lateralities and graphic patterns. In addition, it can measure the strength of a movement, overbought or oversold extremes, reversals and signs of continuation.
The dynamics of the indicator depends on the number of periods used in its formation. The shorter the period, the more volatile the indicator. The popular settings are for 14 and 20 periods. The most common levels are the lines +100, zero and -100.
Because it is an oscillator, the CCI can be a strong tool for identifying overbought and oversold conditions. The input signal occurs in two situations, the crossing of the line +100 and -100 as shown in the example below.
- The crossing of the CCI line below the -100 level represents the oversold condition. The return of the CCI line above the -100 level generates the buy signal. Indicated by the blue arrows.
- Analogous to the oversold condition, overbought occurs when the CCI crosses the level of +100 upwards. The sell signal is generated at the crossing of the +100 level from top to bottom.
The trend lines at the CCI are a strong indication of the moment of price movement. The technique is based on the connection of descending tops or ascending funds. The input signal occurs when the CCI breaks the trend line.
In the example below, the blue lines show the connection of the CCI tops. The break of LT's represents the signal of a long entry and subsequent upward price movement. Four highly successful opportunities were presented in a short period of time.
Woodie CCI is a system developed by the North American trader Ken Wood. The strategy consists of entry and exit signals using a combination of basic elements of the CCI.
There are several signs that traders generally look for when working with this strategy. Two of them are presented below.
Zero line Reject (ZLR)
It is the most popular and most used sign. Zero line rejection is a trend continuation pattern. Basically, the signal occurs when the CCI approaches zero line during a strong trend and then bounces in the opposite direction.
It is a reversal sign. It is the formation of a figure similar to a ghost, with shoulders (indicated in "1") and head (indicated in "2"). Entry occurs at the break of the neck line as indicated in “A” in the chart below.