CCI Indicator with a Strong Trading Strategy for Beginners

Introduction to the Indicator

Today we will discuss a powerful trading indicator, the CCI (Commodity Channel Index), which belongs to the family of well-known oscillators.

The indicator was developed in 1980 by Donald Lambert.

It is widely used by traders around the world and is mainly applied to identify strong overbought and oversold zones.

The CCI can also be used to detect different types of divergence, but its strength lies in identifying strong overbought and oversold areas. For this reason, it is best applied primarily for spotting these saturation zones.

How to Add the Indicator
    1. Go to the Indicators List.
    2. Select the Oscillators menu.
    3. Choose the Commodity Channel Index indicator, as shown in the chart.

Components of the Indicator

The indicator consists of a moving line.

It includes the +100 level, which represents the overbought zone.

It also includes the -100 level, which represents the oversold zone.

When price reaches the overbought zone, a reversal can be expected, and selling opportunities should be considered.

When price reaches the oversold zone, a reversal can be expected, and buying opportunities should be considered.

How to Trade with the Indicator

Like any other indicator, the CCI may produce false signals.

Therefore, it is very important to filter out signals in order to identify the strongest and most reliable trading opportunities.

This can be done easily by trading only in the direction of the overall trend.

By doing so, you will be focusing on setups that align with the market direction, which increases the probability of success and reduces risk.

Buy Setup

As mentioned, trades should only be taken in line with the trend. First, determine the trend on the daily timeframe, and it must be upward.

The trend can be identified in different ways, such as drawing a trendline or applying a 20 or 25 moving average on the daily chart.

Once the trend is confirmed, move to the 4-hour chart.

Here, adjust the CCI by adding extra levels at +200 and -200.

These added levels create a stronger saturation zone, and it is crucial that price reaches these zones before considering any trade.

Now, after adding the levels, wait for a price pullback along with the indicator reaching -100 or -200 (the oversold zone).

Once the indicator bounces back upward and price also reverses, a buy trade can be entered immediately.

Buy setups are stronger when they occur near support zones, which ensures higher success rates.

Sell Setup

As with buy trades, we only trade with the overall direction. First, identify the trend on the daily timeframe, and it must be downward.

This can be confirmed by drawing a trendline or applying a 20 or 25 moving average on the daily chart.

Once the trend is confirmed, move to the 4-hour chart.

Wait for a price rally along with the indicator reaching +100 or +200 (the overbought zone).

When the indicator reverses downward and price also starts to decline, a sell trade can be entered immediately.

Sell setups are stronger when they occur near resistance zones, ensuring a higher success rate.

Setting Targets and Stop Loss

Stop loss placement is simple. It should be set at the previous swing high or swing low relative to the trade.
    • For buy trades: place the stop loss below the last swing low formed during the correction. This is the best location for the stop.
    • For sell trades: place the stop loss above the last swing high formed during the correction. This is the best location for the stop.

Targets can be managed in two ways:
    • Method 1: Set two targets. The first equals the stop loss size, and the second is double the stop loss.
Example: if stop loss = 40 pips, then target 1 = 40 pips, and target 2 = 80 pips.
    • Method 2: Use the nearest support and resistance levels as trade targets.

Important Notes to Ensure High Success Rate

    • Only trade in the direction of the trend.
If the trend is up, look only for buy opportunities.
If the trend is down, look only for sell opportunities.
    • Do not trade during news events.
    • Prefer buy trades when price has reached support zones, and prefer sell trades when price has reached resistance zones. This improves the success rate significantly.
    • If price on the daily timeframe reaches reversal zones against the trend, no trades should be taken.

For example:

    • If the trend is upward but price has reached daily resistance.
    • If the trend is downward but price has reached daily support.
In these cases, trading should be paused temporarily.