CCI Divergence Indicator Guide

CCI divergence MT5 indicator is a MetaTrader CCI (Commodity Channel Index) divergence detector. This popular chart oscillator is useful in trading reversals of all financial instruments and not just in the commodity market. It was developed by American Donald Lambert in the early 80s. The CCI divergence detector indicator for MT4 is used to measure the current price of the asset against an average price over a period of time. Besides, this technical is a type of flexible indicator that can be used to determine whether the financial asset is overbought or oversold. For traders who trade for the long term, this helps them determine when a trend is likely to reverse. This is mainly done through CCI divergence detection by the indicator in Tradingview charts.

CCI Divergence  indicator Guideline

CCI Divergence Guide

What is CCI divergence ?

CCI divergence recognizes the divergence between price activity and the commodity channel oscillator. Also, the CCI divergence indicator is a popular trading strategy that is useful in all markets (not just commodities). To explain, divergence detection reveals possible turning points, considered as excellent entry points for FX traders, in the forex exchange.
Divergence notices are visually hard to identify. Fortunately, the indicator automatically notices and plots CCI divergences in MT4 FX charts. Consequently, divergence traders may easily utilize the indicator in their trading process to detect price reverses.

Computation

To compute the CCI divergence, we should follow these steps:
CCI = TP – SMA /0,015 × Mean deviation
where :

  • TP: typical price also called average price = (high+low+close)/3.
  • SMA: Simple Moving Average= sum of typical prices/N.
  • N: the number of periods.

There are 3 steps to calculate the mean deviation:

  1. Substruct the most recent n-period average of the typical price from each period’s typical price. : A= TP-SMA(TP,N). Where: SMA(TP,N)= SUM(TP,N)/N.
  2. Take the absolute values of numbers just found before, then sum them: SUM(A, N).
  3. Divide it by the total number of periods (N).: SMA(A, N)= SUM(A, N)/N.

Certainly, to draw a CCI divergence indicator on a chart in the MetaTrader platforms or Tradingview, you don’t need to know all this. But to understand more precisely what this indicator shows, it is necessary to understand how it is computed.

How do you use CCI divergence indicator ?

The main objective of the indicator resides in identifying divergence points. To do so, the indicator compares price activity on the chart and pivot values of the CCI divergence tool. To explain, it links peaks and troughs from the chart and the oscillator indicator to identify hidden CCI divergence signals. Bullish CCI divergence is hidden when the oscillator prints lower lows but the price prints higher lows on the chart. Alike, bearish CCI divergence forms when the oscillator marks higher highs but the price chart marks lower highs. Finally, the technical tool draws the divergence in the form of lines so that traders can visualize the price divergence from the CCI oscillator. Also, it provides them with arrow signals as high-probability entry points in forex trading. To clarify, the blue arrow pinpoints a bullish divergence signal. While the red arrow pinpoints a bearish divergence signal.

Bullish Chart Example (USD/CAD H4)

Traders have better initiate buy trades once the CCI divergence indicator displays a blue arrow on the price chart.
The following US dollar and Canadian dollar figure displays perfect bullish divergence point. Hence, blue arrows represent a likely reversal toward an uptrend. This also indicates that buyers are getting stronger.

CCI bullish and bearish divergence indicator

Bearish Chart Example (EUR/GBP Daily)

Traders have better start sell positions once the CCI divergence indicator depicts a red arrow on the price chart.
The following EURO and Pound Sterling figure displays excellent bearish divergence pivots. Hence, red arrows represent a probable reversal toward a downtrend. This also indicates that sellers are getting stronger.

Bearish commodity channel divergence

Download CCI divergence indicator for MT4

CCI Divergence indicator MT4 shows price divergence signals between the price evolution and the MetaTrader 4 technical indicator. This divergence trading indicator is useful to identify early market reversals over all time periods. Before making any decision to trade, always validate CCI divergence trades with other technical tools.

CCI Divergence indicator for MT4 ( Metatrader 4 )

Looking to the chart above. A blue CCI divergence on the chart indicates that a bullish divergence has occurred between price and CCI. While a red CCI divergence on the chart indicates that a bearish divergence has occurred between price and CCI.

Download CCI divergence indicator for MT5

CCI Divergence indicator MT5 displays robust divergence signals between the price movement and the ligne of this MetaTrader 5 technical indicator. This divergence is a sign of an impending trend moving in the opposite direction. Also, the divergence trading indicator is helpful to identify premature reverse points over all time frames.

CCI Divergence Indicator MT5 ( Metatrader 5 )

Using the chart above, let us consider the case where prices are falling. The CCI divergence indicator MT5 enters the area below -100 and forms a local low there. We also have a floor on the price chart. The indicator then turns up above -100 to make another low and crosses the -100 line down again. This last bottom is higher than the previous one.

In the meantime, the price chart has made a downward move beating the previous minimum prices. So we have a bullish divergence. As soon as the CCI indicator crosses the -100 line upwards, we get an excellent buy signal from this divergence indicator. This signal is based on the identified divergence.

Download CCI divergence indicator for Tradingview

CCI divergence indicator for Tradingview indicates when the market would be overbought/oversold. It helps to gauge the reversal direction and estimate the strength of a prevailing trend.

commodity index divergence

Another way to trade with CCI divergences is to use the overbought and oversold signals. If the CCI line crosses +100, the markets are overbought. It is a signal to prepare to enter a sell position when the line crosses the same line in a downtrend. When the CCI line crosses -100. Prepare to enter a buy position when the line crosses the line in an uptrend.

However, changes in the direction of the CCI line in overbought or oversold areas are also very good signals. If the CCI divergence tool reaches an overbought zone above 100. We expect it to change direction from high to low. Immediately after this change, you can open a position for a price drop. If, on the other hand, the CCI enters the oversold zone and changes direction from a downtrend to an uptrend. You can immediately open a position for a price increase. This is a very simple, yet quite effective, approach to CCI divergence Tradingview trading.

Conclusion

The CCI divergence requires a good understanding to pick out the most relevant reversal information from it. However, it turns out to be a useful indicator. Its ability, in particular, to highlight situations of under or overvaluation, is very interesting. The CCI Divergence indicator for MT4, MT5, and Tradingview is not automatically useful in a trading system. It needs much more visual and human interpretation. And this is in order to invalidate any false signals that may arise from it.