Free Download: CCI Indicator with Video Guide for Smarter Trading (MT4/MT5)

Commodity Channel Index or in short CCI is an MT4 indicator that was created by Donald Lambert and presented in commodities magazines in 1980. It is designed to study commodity markets and it’s one of the best indicators for mt4. But it is not limited to commodities, traders can use it with all trading instruments (Forex, crypto, …). Moreover, the CCI MT5 indicator is a type of oscillator indicator, and it has no limits from either side. It measures the deviation of the commodity price from its average statistical price. 

Indicator Guide FAQ

Video Guide

What is CCI Indicator ?

The commodity channel index indicator is an unbound oscillator, which means that it possesses no limit, neither up nor down. And this makes it different from the other oscillators with fixed high and low values. It computes the current price relative to an average price in a specified period of time. The CCI strategy is as follows: CCI has a relatively high value when prices are far above their average. And it has a relatively low value when prices are far below their average. It is used by forex traders to determine new trends and place divergence between price and the indicator. The divergence indicates that the trend is weakening and there is a potential reversal.

CCI Indicator definition

Moreover, we said earlier that the CCI belongs to the oscillator family, thus it pinpoints likely overbought and oversold areas. And as it is unbounded, overbought and oversold areas might extend for a longer period than expected. However, it is recommended to use CCI with additional indicators or price action analysis to ensure trading signals and overbought and oversold areas.

How to trade with this indicator?

The CCI indicator moves above and below zero. it works by comparing the present price to some priors estimation. And according to that comparison, it tells us relatively how strong or weak the market is. Also, it uses a moving average as a benchmark to calculate the present price. Moreover, the analysis of Commodity channel index indicator is based on the 100 line. When CCI moves above +100, a new and strong upward direction starts, which indicates a buy signal. When CCI moves below -100, a new and strong downward direction starts, which indicates a sell signal. 

Example

There are two basic strategies that the CCI Tradingview indicator exhibits and uses for trading:

  1. Find divergences: divergence happens when the price gets a new maximum, and the CCI can not rise more than the prior maximums. This divergence is generally followed by a price correction.
  2. Overbought / Oversold: CCI oscillates between +100 and -100. Values higher than +100 indicate that there is an overbought and potential of correcting decrease. While values below -100 indicate that there is an oversold, and potential of correcting increase.
CCI Indicator MT5

CCI Formula

The calculation of the CCI indicator for Metatrader is quite complex, it involves many calculation steps, which are as follow:

  1. Identify the period which CCI will analyze. 20 days is typically used. Short periods results in a more volatile indicator. Whereas, long periods make it smoother.
  2. Calculate the typical price. You compute this typical price by taking the arithmetic mean of high, low, and close price.

TP = ( high + low + close ) / 3

With:

  • TP: Typical price
  • High: The highest price for this period of time.
  • Low: The lowest price for this period of time.
  • Close: The closing price for this period of time.

3. Compute the simple moving average for the n specified periods by summing the last n TP and dividing by n (member of periods).

SMA  (TP,n) = ∑ (TP,n) / n

   4. Calculate the mean deviation by subtracting the SMA from the TP for the last n periods. Then summing the absolute values and dividing by n.

      MD = | TP – SMA (TP, n) | / n

   5. Calculate the CCI value using this equation: CCI = ( TP – SMA ) / ( 0.015 × MD )

     With : 0.015 Is constant

Donald Lambert set the constant at 0.015 to ensure that about 70% to 80% of the CCI values fall between +100 and -100. However, values above 100 or below -100 indicate that there is an unusual deviation from the mean. When these movements happen the market indicates overbought or oversold conditions.

You don’t need to do all these calculations, because the CCI MT4 indicator does them for you. You just need have to choose the number of periods.

Conclusion

The commodity channel index (CCI) for MetaTrader 4 and 5 is a popular indicator that offers a simple and clear way for forex traders to find buy and sell opportunities. Moreover, you can use this tool for any market you are interested in.

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