Top 5 CCI Trading Strategies for Olymp Trade.

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What is CCI?

CCI stands for Commodity Channel Index.

The Commodity Channel Index (CCI) is a technical indicator that compares the current price of an asset to the average price over a given number of periods. The outcome may then be used by traders to gauge the market momentum.

Components of the Commodity Channel Index (CCI).

The Commodity Channel Index (CCI) has the following components:

  • A zero line.
  • A curve, area, dots, or histogram oscillating about a zero line.
  • The upper limit (+100).
  • Lower limit (-100).

Apart from the zero line, there are other levels above and below the zero line.

Mostly, the CCI curve, area, dots, or histogram moves between -100 and +100 while sometimes the movement may be beyond such levels. +100 and -100 are therefore usually considered the upper and lower limits of the CCI respectively.

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The Commodity Channel Index (CCI)

Basic Signals Provided by the Commodity Channel Index (CCI).

We mentioned that the CCI is used as a measure of price momentum.

It can therefore be used to measure the direction price momentum is increasing towards. 

You can identify this by looking for zero line crossovers of the CCI curve, area, dots, or histogram and also overbought and oversold conditions.

Zero Line Crossovers.

The cross of the CCI curve, area, dots, or histogram from below to above the zero line is an indicator of upward price momentum.

This is a bullish signal.

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The cross of the CCI curve, area, dots, or histogram from above to below the zero line hints at a downward price momentum.

This would be a bearish signal.

Overbought and Oversold Conditions.

Whenever the CCI curve, area, dots, or histogram is above the upper limit (+100), such is an overbought condition.

It means that buyers are exhausted and may be close to depleting their resources.

As such, sellers are warming up to take the market by a storm and reverse the prices downwards.

A downward price momentum or reversal will be confirmed when the CCI curve, area, dots, or histogram crosses the upper limit (+100) from above downwards signaling a bearish entry.

On the other hand, whenever the CCI curve, area, dots, or histogram is below the lower limit (-100), such is an oversold condition.

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It means that sellers are exhausted and may be close to depleting their resources.

As such, buyers are warming up to take the market by a storm and reverse the prices upwards.

An upward price momentum or reversal will be confirmed when the CCI curve, area, dots, or histogram crosses the lower limit (-100) from below upwards signaling a bullish entry.

What is CCI

CCI Trading Strategies.

CCI trading strategies are those trading strategies based on the CCI tool.

That doesn’t mean that they are exclusively based on the tool, because other tools may be incorporated in such strategies, provided the CCI plays a part as either the primary or confirmatory tool.

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Top 5 CCI Trading Strategies for Olymp Trade.

  • The CCI Divergence Trading Strategy.
  • CCI with Retracements Trading Strategy.
  • The CCI-MACD Trading Strategy.
  • CCI with Support and Resistance.
  • The CCI-Breakout Trading Strategy.
  1. The CCI Divergence Trading Strategy.

CCI divergence occurs where the CCI does not directly reflect what is happening on the price.

That is to say, where the price is making lower lows, the CCI is making higher lows.

Similarly, where the price is making higher highs, the CCI is making lower highs.

Step 1 – Signal.

The first step involves looking for a trading signal.

There are two types of CCI divergences, just as there are two expected outcomes of a trading signal – bullish and bearish.

The signals are as follows:

  • Bullish CCI divergence – in a bullish CCI divergence, prices make lower lows as the CCI makes higher lows.

Meaning, the price is in a downtrend but the fact that the CCI is making higher lows means that the downward momentum is slowing and chances are that an upward trend reversal is coming up.

  • Bearish CCI divergence – in a bearish CCI divergence, prices make higher highs as the CCI makes lower highs.

Meaning, the price is in an uptrend but the fact that the CCI is making lower highs means that the upward momentum is slowing and chances are that a downward trend reversal is looming.

The CCI Divergence Trading Strategy

Step 2 – Confirmation.

A CCI divergence only means a slowing of price momentum either upwards or downwards.

As such, it may not necessarily translate into a trend reversal.

That is why you need to confirm the bullish or bearish divergence signal you get from step 1 as follows:

  • Bullish signal confirmation – the price is making lower lows as the CCI makes higher lows. Draw a trend line joining the lows of the price which must be sloping downwards.

Identify the corresponding highs of the section on which you have drawn the trend line joining the lows and draw another trend line joining those highs, which must also be sloping downwards.

For confirmation that the bullish divergence will cause an upward reversal, the price must break the trend line joining the highs upwards.

  • Bearish signal confirmation – the price is making higher highs as the CCI makes lower highs.

Draw a trend line joining the highs of the price which must be sloping upwards.

Identify the corresponding lows of the section on which you have drawn the trend line joining the highs and draw another trend line joining those lows, which must also be sloping upwards.

For confirmation that the bearish divergence will cause a downward reversal, the price must break the trend line joining the lows downwards.

The CCI Divergence

Step 3 – Entry.

Enter a buy position following a confirmed bullish CCI divergence signal.

On the flip side, enter a sell position following a confirmed bearish CCI divergence signal.

Step 4 – Exit.

Hold a buy position until the CCI dips below the zero line from above.

Also, hold a sell position until the CCI rises above the zero line from below.

  1. CCI with Retracements Trading Strategy.

This strategy banks on trending markets and uses the CCI to time entry in the direction of the ongoing trend after a retracement.

But what exactly is a retracement? 

Retracement.

A retracement is a pullback in a direction opposite that of a trend before the primary trend resumes.

Retracements characterize price movements in literally all markets.

Meaning, if the market is trending upwards, there will be short-term downward price movements and then the upward trend will resume.

This pattern of rallying upwards and pausing and then rallying upward again may continue for so long such that a huge price move is realized, from which buy trades would have profited big time.

On the contrary, if the market is trending downwards, there will be short-term upward price movements and then the downward trend will resume.

This pattern of the price rallying downwards and pausing and then rallying downward again may continue for so long such that a huge price move is realized, from which sell trades would have profited big time.

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Retracements are best timed using a tool known as the Fibonacci levels.

That is because some reverse price movements may start as retracements and then end up as price reversals.

Fibonacci levels help estimate and anticipate the level at which retracements are likely to occur and therefore are perfect retracement entry timers.

Fibonacci Levels.

The Fibonacci Levels is a technical analysis tool that is made up of horizontal lines drawn in respect to Fibonacci numbers of 0%, 23.6%, 38.2%, 50%, 61.8%, and 100%.

On some platforms, there are more levels than those mentioned here.

The lines help in predicting possible support and resistance levels where the price is bound to reverse.

The Fibonacci Levels are just meant to show you retracement levels of the price.

Retracement levels are levels where the price, after pulling back from a definite trend, is likely to reverse in the direction of the primary definite trend.

That way, you can enter the market in the direction of the bigger general trend at those levels.

To use the Fibonacci Levels tool, the first thing you must do is to identify which kind of a trend you are dealing with.

An uptrend is typically a market that forms higher highs and lows.

A downtrend is one that forms lower highs and lows progressively. You can also use other methods such as moving averages to determine a market trend.

Fibonacci Levels on an Uptrend.

If the market is an uptrend, identify a recent market low and let the zero level form the support level there.

The rest of the readings of the Fibonacci Levels tool must be above the zero line.

Identify also the most recent high and let the 100 level form the resistance level at that high.

Allow the price to rally upwards and then to retrace back downwards.

Observe to see the price pullback downwards to any of the Fibonacci Levels.

It must then retest the level without breaking it downwards so that you can resort to a bullish signal.

Fibonacci Levels on an Uptrend.

Fibonacci Levels on a Downtrend.

If the market is a downtrend, identify a recent market high and let the zero level form the resistance level there.

The rest of the readings of the Fibonacci Levels tool must be below the zero line.

Identify also the most recent low and let the 100 level form the support level at that low.

Allow the price to rally downwards and then to retrace back upwards.

Observe to see the price pullback upwards to any of the Fibonacci Levels. It must then retest the level without breaking upwards so that you can resort to a bearish signal.

Fibonacci Levels on a Downtrend.

The CCI with Retracements Trading Strategy.

The primary tools here will be price action to establish the trend direction and observe retracements and the Fibonacci levels to estimate the end of retracements.

Signals generated using these two concepts will then be confirmed using the CCI.

Step 1 – Signal.

Here is how you use price action and Fibonacci levels to generate bullish and bearish signals:

  • Bullish signal – the market must be on an uptrend, meaning it forms higher highs and higher lows.

The Fibonacci levels tool must be correctly placed with the zero level at the closest swing low and the 100% level at the nearest swing high.

The price must have pulled back downwards to any of the Fibonacci levels and retested the level successfully with failure of every attempt to break the level downwards.

Only focus on the level which is not broken and ignore levels that have already been broken by the retracing price.

  • Bearish signal – the market must be on a downtrend, meaning it forms lower highs and lower lows.

The Fibonacci levels tool must be correctly placed with the zero level at the closest swing high and the 100% level at the nearest swing low.

The price must have pulled back upwards to any of the Fibonacci levels and retested the level successfully with the failure of every attempt to break the level upwards.

Only focus on the level which is not broken and ignore levels that have already been broken by the retracing price.

Step 2 – Confirmation.

After you have spotted either signal, the next thing is to confirm the signal using the CCI as follows:

  • Bullish signal confirmation – the CCI curve, area, dots, or histogram must have been reading below -100 level and crossed the level from below upwards.

Alternatively, the CCI curve, area, dots, or histogram must have recently crossed from below to above the zero line.

  • Bearish signal confirmation – the CCI curve, area, dots, or histogram must have been reading above +100 level and crossed the level from above downwards.

Alternatively, the CCI curve, area, dots, or histogram must have recently crossed from above to below the zero line.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position after confirming a bearish signal.

Step 4 – Exit.

Exit a buy position once the CCI dips below the zero line from above.

Also, exit a sell position once the CCI rises above the zero line from below.

Alternatively, exit the buy position in case the Fibonacci level retested by the downward retracement is breached downwards.

On the other hand, exit the sell position in case the Fibonacci level retested by the upward retracement is breached upwards.

  1. The CCI-MACD Trading Strategy.

The CCI-MACD trading strategy blends the Commodity Channel Index (CCI) with the Moving Average Convergence Divergence (MACD).

Moving Average Convergence Divergence (MACD).

MACD is a trading tool which traders use to identify both the direction and the strength of a market trend.

MACD is composed of a zero line, fast-moving average, slow-moving average, and a histogram or curve.

Usually, when the market is trending upwards, the MACD moving averages and the histogram or curve shift from below to above the zero line.

The fast-moving average may also cross over from below to above the slow one.

However, when the market begins to trend downwards, the MACD moving averages and the histogram or curve shift from above to below the zero line.

The fast-moving average may also cross over from above to below the slow one.’

Components of MACD

The Strategy.

It may look complex how CCI can be combined with MACD to formulate a trading strategy.

However, you are just about to realize how simple it can be.

The primary indicator here will be the MACD tool.

MACD will therefore be used to draw trading signals which can then be confirmed with the CCI.

It is that simple.

Step 1 – Signal.

Here are the specifications of bullish and bearish signals generated by the MACD:

  • Bullish MACD signal – the fast MACD Moving Average must cross over from below to above the slow MACD Moving Average.

Alternatively, the MACD Histogram/curve or both MACD Moving Averages must have recently shifted from below to above the zero line.

  • Bearish MACD signal – the fast MACD Moving Average must cross over from above to below the slow MACD Moving Average.

Alternatively, the MACD Histogram/curve or both MACD Moving Averages must have recently shifted from above to below the zero line.

The CCI-MACD Trading Strategy

Step 2 – Confirmation.

After you have spotted either signal, the next thing is to confirm the signal using the CCI.

MACD bullish and bearish signals will be confirmed as follows, using the CCI:

  • Bullish signal confirmation – the CCI curve, area, dots, or histogram must have crossed from below to above the zero line.

Alternatively, the CCI curve, area, dots, or histogram must have been reading below -100 level and crossed the level from below upwards.

  • Bearish signal confirmation – the CCI curve, area, dots, or histogram must have crossed from above to below the zero line.

Alternatively, the CCI curve, area, dots, or histogram must have been reading above +100 level and crossed the level from above downwards.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position after confirming a bearish signal.

Step 4 – Exit.

Exit the buy position once the MACD gives an opposing bearish signal.

On the other hand, exit the sell position once the MACD gives an opposing bullish signal.

Alternatively, exit a buy position once the CCI dips below the zero line from above.

Also, exit a sell position once the CCI rises above the zero line from below.

  1. CCI with Support and Resistance.

This strategy is based on support and resistance coupled with the CCI indicator.

If you are wondering what support and resistance are, hold it, we shall discuss them next.

Support and Resistance.

Support is a market price level that indicates a strong buy pressure.

It hints at a surplus of buyers and so falling prices, almost always, seem to reverse upwards once they reach such price level or zone.

Resistance, on the other hand, is a market price level that indicates strong selling pressure.

It points to a surplus of sellers and so rising prices, almost always, seem to reverse downwards once they reach such price level or zone.

Usually, no indicator will tell you that this is a support level or this is a resistance level.

You spot support and resistance levels using price action. I think it would also be prudent if we talked briefly about price action also.

New support and resistance levels

Price Action.

Price action is basically how the price behaves.

If a trader uses price action to trade, they simply observe the highs and lows of the price and obey what the price is saying about itself without the influence of any indicator, oscillator, or technical tool.

Price action may be in many forms such as support levels, resistance levels, trend breakouts, and many more concepts.

The concepts we shall dwell on here, are support and resistance.

That said, you will observe a price level or zone at which many and the most extreme swing highs seem to form regularly and call it resistance.

On the contrary, you will observe a price level or zone at which many and the most extreme swing lows seem to form regularly and call it support.

Use that information together with our prior definitions of support and resistance to connect the dots.

The Strategy.

Understood support and resistance? Well, we can then proceed to see how the concepts of support and resistance can be used with the CCI for profitable trading.

The primary tool in this strategy will be the concepts of support and resistance. Signals which support and resistance give can then be confirmed using the CCI.

Step 1 – Signal.

Here is how to obtain bullish and bearish signals using support or resistance:

  • Bullish support signal – establish a zone of strong buy pressure, where falling prices, almost always, seem to reverse upwards once they reach that zone.

That will be the support zone and a bullish signal. Note that the support may have either a horizontal or diagonal layout.

  • Bearish resistance signal – establish a zone of strong sell pressure, where rising prices, almost always, seem to reverse downwards once they reach that zone.

That will be the resistance zone and a bearish signal. Note also that the resistance may have either a horizontal or a diagonal layout.

CCI with Support and Resistance.

Step 2 – Confirmation.

If you have your bullish or bearish signal at hand, then let me show you how to confirm it using the CCI tool. Here are the confirmation specifications:

  • Bullish signal confirmation – the CCI curve, area, dots, or histogram must have been reading below -100 level and crossed the level from below upwards.

Alternatively, the CCI curve, area, dots, or histogram must have recently crossed from below to above the zero line.

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  • Bearish signal confirmation – the CCI curve, area, dots, or histogram must have been reading above +100 level and crossed the level from above downwards.

Alternatively, the CCI curve, area, dots or histogram must have recently crossed from above to below the zero line.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position after confirming a bearish signal.

Step 4 – Exit.

Exit a buy position once the CCI dips below the zero line from above. Also, exit a sell position once the CCI rises above the zero line from below.

  1. The CCI-Breakout Trading Strategy.

The CCI-Breakout trading strategy is one that brings together the CCI and breakouts to time-perfect entries in the direction of breakouts.

But what exactly are breakouts, you ask?

Let us discuss breakouts first before we proceed any further.

Breakouts.

Trading breakouts in Olymp Trade

Breakouts are breaches in certain price levels which had previously remained unbroken.

Such price levels may include support and resistance or any other significant price levels which the price had seemed to respect at first.

Breakouts do not only occur after price consolidations with support and resistance levels.

Ongoing trends may show breakouts such that levels of previous highs are broken upwards or levels of previous lows are broken downwards.

So what exactly is a breakout then?

A breakout is the ultimate breach of any price level which the price had previously and regularly respected.

Breakouts usually occur with a sense of market urgency.

It is like the price had been looking forward to a weak point through which it would escape the confinement it might have been in, previously.

That is the reason why prices that have been ranging for so long lead to huge price moves after a breakout from such price consolidation.

The Strategy.

Well informed about price breakouts now? The next worry you might be having is the manner in which such breakouts should be coupled with the CCI for effective trading. That, I will discuss below.

The primary tool here will be price action to establish trends, price consolidations, and eventual breakouts. Signals generated using such concepts can then be confirmed using the CCI.

Step 1 – Signal.

Here is how to generate bullish and bearish breakout signals using price action to spot trends, price ranges, and eventual breakouts:

  • Bullish breakout signal – the price must have been trading within a tight range for a reasonable period or in a definite uptrend.

If the price is trading within a range, it must break above the upper limit of the range and retest that level with the failure of every attempt to return below the limit.

On the other hand, if the price is on a definite uptrend, it must break above the level of the immediately previous swing high and fail to return below that level.

The CCI-Breakout Trading Strategy.

  • Bearish breakout signal – the price must first have been trading within a tight range for a reasonable period or in a definite downtrend.

If the price is trading within a range, it must break below the lower limit of the range and retest that level with the failure of every attempt to return above the limit.

On the other hand, if the price is on a definite downtrend, it must break below the level of the immediately previous swing low of the trend and fail to return above that level.

Step 2 – Confirmation.

Do you have your bullish or bearish breakout signal ready? Then let me show you how to confirm it using the CCI tool. Here are the confirmation specifications:

  • Bullish signal confirmation – the CCI curve, area, dots, or histogram must have been reading below -100 level and crossed the level from below upwards.

Alternatively, the CCI curve, area, dots, or histogram must have recently crossed from below to above the zero line.

  • Bearish signal confirmation – the CCI curve, area, dots, or histogram must have been reading above +100 level and crossed the level from above downwards.

Alternatively, the CCI curve, area, dots or histogram must have recently crossed from above to below the zero line.

Step 3 – Entry.

Enter a buy position following a confirmed bullish breakout signal and a sell position after confirming a bearish breakout signal.

Step 4 – Exit.

Exit a buy position once the CCI dips below the zero line from above. Also, exit a sell position once the CCI rises above the zero line from below.

Wrapping Up.

The CCI is a popular tool, especially among Olymp Trade traders.

If you didn’t know how to use the tool to trade, now you know.

Make good use of it.

Happy Trading!


*Risk warning:

The information provided does not constitute a recommendation to carry out transactions. When using this information, you are solely responsible for your decisions and assume all risks associated with the financial result of such transactions.
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