Advertisement

CCI Divergence Indicator Guideline

CCI divergence indicator The CCI (Commodity Channel Index) divergence indicator is a popular oscillator that is useful in all markets (not just commodities). It was developed by American Donald Lambert in the early 80s. The divergence indicator is used to measure the current price of the asset against an average price over a period of time. However, this indicator is a type of flexible indicator that can be used to determine if the asset is overbought or oversold. For traders who trade for the long term, this helps them determine when a trend is likely to reverse. It can also be useful to predict divergence.

CCI Divergence Indicator Guideline​

What is CCI divergence Strategy?

The CCI  divergence Strategy is a popular Strategy that is useful in all markets (not just commodities). It was developed by American Donald Lambert in the early 80s. The divergence Strategy is used to measure the current price of the asset against an average price over a period of time. However, this indicator is a type of flexible indicator that can be used to determine if the asset is overbought or oversold. For traders who trade for the long term, this helps them determine when a trend is likely to reverse. It can also be useful to predict divergence.

How to calculate Divergence?

To compute the CCI divergence indicator, 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:
    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.
  • Take the absolute values of numbers just found before, then sum them: SUM(A,N).
  • Divide it by the total number of periods (N).: SMA(A,N)= SUM(A,N)/N.

Certainly, to draw 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.

Download CCI divergence indicator for MT4

CCI Divergence indicator MT4 shows price divergence between the curve of price and the technical indicator CCI. This MT4 indicator is useful to identify market reversals over all time periods. To make a 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 for MT5 ( Metatrader 5) is used mainly to determine the divergence. This divergence is a sign of an impending trend moving in the opposite direction.
CCI Divergence Indicator MT5 ( Metatrader 5 )

Using the chart above, and consider the case where prices are falling. The CCI indicator MT5 enters the area below -100 and forms a local low there. We also have a floor on the price chart. The CCI 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 the CCI indicator. This signal is based on the identified divergence.

Download CCI divergence indicator for tradingview

CCI divergence indicator for Tradingview indicates when the market is overbought/oversold. It helps to gauge the direction and strength of a trend as well as spot new trends.
CCI Divergence indicator Tradingview with Strategy

Another way to trade with CCI 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 indicator 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 the CCI indicator.

Conclusion

The CCI, if it requires a good understanding to pick out the 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.
Advertisement