How Investors Can Utilize Commodity Channel Index to Trade Stock Trends

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The Commodity Channel Index or CCI was developed by Donald Lambert, a commodity market technical analyst, who at first published the commodity market indicator in Commodities periodical magazine (now Futures) in the year of 1980. Despite its name, the Commodity Channel Index can be used in all markets and isn’t just for the commodities. The CCI was initially developed to spot long time trend moves, but has been modified by traders or investors for use on every time frame. Here is main two strategies & plan that both investors & traders can employ.

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The Commodity Channel Index compares the present rate to an average rate over a time period. The trading indicator fluctuates up, down and zero, moving into negative or positive territory. While most of the values, approximately 75 percent, will fall between -100 to +100, about 25 percent of the value will drop down outside this series, indicating lots of weakness or potency in the rate movement.

Stock Chart with CCI Indicator:-

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Apple stock chart:

The mention chart uses thirty periods in the Commodity Channel Index calculation; since the apple stock chart is a monthly time chart, every new calculation depends on the most nearer 30 months. CCIs of 20 & 40 periods are also similar.

A period denote to the number of rate or price bars the trading indicator will involve in its all calculation. The rate bars can be monthly, weekly, daily, one-minute, five-minute, or any time frame; you have easy to get to on your charts.

The longer time period chosen (the many bars in the computation), the less frequently the indicator will shift outside -100 or +100. For short term investor or traders consider a shorter period time (fewer rate bars in the computation) since it will give more important signals, while long term deals and investors choose a longer time such as 30 or 40. Using a weekly or daily chart is suggested for longer-term investors, while short term buys & sales can relate the indicator to an hourly movement chart or even a short time period one-minute chart.

Indicator computations are performed involuntarily by trading charting software or a commodity trading platform; you are only needed to input the number of the periods you desire to use and select a time frame for the  your chart (as like weekly, daily, 4-hour etc). Freestockcharts.com, Stockcharts.com and commodity trading platforms as like Thinkorswim & Meta Trader all give the CCI indicator. Choose the indicator from the various indicators list to put in it to your chart. They also provide good Commodity MCX Tips.

If the CCI is higher than +100, the rate is well above the regular rate as measured by the trading indicator. When the trading indicator is beneath, the rate is well below the regular rate.

CCI Basic Strategy:

An essential CCI strategy is to see for the CCI to change above +100 to produce buy signals and change below -100 to produce sell or short buy & sell signals. Traders may only want to get the buy signals, exit if the sell signals take place and then reinvest if the buy signal take place again.

ETF Chart with CCI Basic Trade Signals:-

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SPY chart:

The weekly signal chart above produced a sell trading signal in 2011, if the CCI dipped underneath -100. This would have told long term traders or investors that a potential downward trend was underway. More lively traders can have also utilized this as a short sale trading signal. In early year 2012 a buy indication signal was triggered, and the long trading position stays always open until the CCI changes below -100.

Multiple-Time-Frame CCI Strategy

The CCI can as well used for several time frames. A long term chart is utilized to establish the leading trend, while a shorter term trading chart is used to find pullbacks & entry points into that market trend. This strategy or plan favors more vigorous traders and can even be utilized for day trading, as the “long & short term” is connected to how long an investor wish for their positions to very last.

Comparable to the basic strategy, plan and Commodity Tips, when the CCI changes above the +100 on your long term trading chart, the market trend is upward and you only see for buy indication signals on the short-term chart. The market trend is measured up until the long term CCI dips under the -100.

Buy Signals and Exits in Long-term Uptrend:-

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S&P 500 chart:

Figure 3 describe 3 buy signals on the daily bases chart and 2 sell signals. No short buy and sales are started, since the CCI on the long-term chart shows an uptrend.

When the Commodity Channel Index is under the -100 on the long term trading chart, only get short sale signals on the short-term signal chart. The downward trend is in effect while the long term CCI rallies to top of +100.

Take a short trade when the CCI rallies above +100 and then drops back below +100 on the shorter-term chart. Exit the short trade once the CCI moves under and then the rallies back on top of -100. Alternatively, if the market trend on the long term CCI moves up, exit all close positions.

The Bottom Line:

The Commodity Channel Index can be utilized in any type of market or time frame. The single time frame can be utilized, but commodity trading with 2 will give more trading signals for dynamic traders. Always use the CCI on the longer-term chart to set up the dominant market trend, and on the short term trading chart to separate pullbacks and produce trade signals. The strategies & indicators are not with no pitfalls; adjusting strategy criterion and the indicated time period may give better performance and more reliable Stock Tips Commodity NCDEX Tips, Even though every system is soft to losing deals. Implement a stop loss (SL) strategy to cap peril, and test the Commodity Channel Index strategy for success on your marketplace and time frame previous to using.

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