Commodity Channel Index:

Commodity Channel Index also called CCI and is a momentum indicator. This is a separate indicator window that generally contains the levels -100 and +100.

How to use CCI indicator in forex trading:

CCI trading in Range Markets: in range markets CCI is used to find the oversold and overbought regions. If the CCI indicator moves above +100 line this is an overbought condition. If the CCI indicator moves below the -100 line this is an oversold condition.

In range markets a buy trading signal occurs when the CCI indicator moves from below the -100 line to above the -100 line that means from the oversold region to the normal region. The buy trade should be closed when the CCI indicator moves to the overbought region from below +100 line to above +100 line.

Similarly a sell signal occurs when the indicator moves from above the +100 line to below the +100 line that is from the overbought region to the normal region. The sell trade should be closed when the CCI indicator moves to the oversold region from above -100 line to the below -100 line.

Check the following picture. In the following picture the currency pair is in a range market. Point 1 is a buy signal as the CCI indicator is moving from below -100 line to the above the -100 line. Point 2 is a close signal for the buying signal 1 as the currency pair is moving from below +100 line to above +100 line.

Point 3 is a sell signal as the CCI indicator is moving from above +100 line to below -100 line. Point 4 is a close signal for the currency pair as the CCI indicator is moving from above -100 line to below -100 line.

Point 5 is a buy signal as the CCI indicator is moving from below -100 line to the above the -100 line. Point 6 is a close signal for the buying signal 5 as the currency pair is moving from below +100 line to above +100 line.

Point 7 is a sell signal as the CCI indicator is moving from above +100 line to below -100 line. Point 8 is a close signal for the currency pair as the CCI indicator is moving from above -100 line to below -100 line.

CCI Indicator in Range Market

CCI trading in trending markets:

In a trending market CCI should not be used as an oversold and overbought indicator. I should be used as an indicator to enter the trend even though it is going to overbought or oversold regions.

CCI indicator in uptrend: When there is an uptrend CCI +100 line can be used as a basis for entering the long trades. Enter long trade when the indicator is moving from below the +100 line to above the +100 line. Exit the trade when the indicator is moving from above the +100 line to below the +100 line.

Check the following picture. It is a AUDUSD daily chart. You can see that the trend is upwards.

At point 1 the CCI indicator crossed the +100 line upwards and this is buy signal at point 2 the CCI indicator crossed +100 line downwards so this is a close signal.

At point 3 again the CCI indicator crossed the +100 line upwards and this is a buy signal. At point 4 the CCI indicator crossed the +100 line downwards and this is a close signal.

At point 5 again the CCI indicator crossed the +100 line upwards and this is a buy signal. At point 6 the CCI indicator crossed the +100 line downwards and this is the close signal.

CCI Indicator in Uptrend

CCI indicator in downtrend: When there is an downtrend, CCI -100 line can be used as a basis for entering the short trades. Enter short trade when the indicator is moving from above the -100 line to below the -100 line. Exit the trade when the indicator is moving from below the -100 line to above the -100 line.

Check the following picture. It is a CADJPY daily chart and you can see the downtrend for the currency pair.

At point 1 the CCI indicator crossed the -100 line downwards and this is sell signal at point 2 the CCI indicator crossed -100 line upwards so this is a close signal.

At point 3 again the CCI indicator crossed the -100 line downwards and this is a sell signal. At point 4 the CCI indicator crossed the -100 line downwards and this is a close signal.

At point 5 again the CCI indicator crossed the -100 line downwards and this is a sell signal. At point 6 the CCI indicator crossed the -100 line upwards and this is the close signal.

CCI Indicator in Downtrend

Divergence:

CCI indicator can be used to find out if a trend is weakening by finding out the divergences. Bearish divergence occurs when the price is making higher highs but the indicator is making lower highs. Bullish divergence occurs when the price is making lower lows but the indicator is making higher lows.

Check the following picture. It is a AUDJPY daily chart and the price is making lower lows but the indicator is making highs and giving a bullish divergence. You can see the price moving upwards.

CCI Indicator and Divergence