Commodity Channel Index: by Suniiel A Mangwani

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Commodity Channel Index

By Suniiel A Mangwani
The Commodity Channel Index (CCI) developed by Donald Lambert, is an

indicator designed to identify cyclical turns in currencies or commodities. It is a
momentum indicator that determines how far the current price has been from the
recent average.
In its basic use, the CCI can be used in 2 ways -
1. The CCI can be used as an overbought/oversold indicator
2. It can be used for detecting Divergences from the price trend. When
watching the CCI in relation to the current price, it is useful to watch for
new highs and lows. If the price of the forex trading market is reaching
new highs and the CCI is not reaching new highs, a price correction may
be coming.
Lambert's trading guidelines for the CCI focused on movements above +100 and
below -100 to generate buy and sell signals. Because about 70 to 80 percent of
the CCI values are between +100 and -100, a buy or sell signal will be in force
only 20 to 30 percent of the time. When the CCI moves above +100, a currency
is considered to be entering into a strong uptrend and a buy signal is given. The
position should be closed when the CCI moves back below +100. When the CCI
moves below -100, the security is considered to be in a strong downtrend and a
sell signal is given. The position should be closed when the CCI moves back
above -100.
Most charting software’s include the CCI, as a single line oscillating around the
centre zero line.
Besides looking for divergences, and overbought/oversold values, I use the CCI
(with a setting of 14 periods) to derive signals in 2 different ways –
1. Zero line crossovers – When the CCI is above the zero line, it is a signal
that the overall trend is upwards, and hence we are looking for long
trades. If you think back to what the CCI measures, this is common sense
because it means the price is staying above its moving average.
2. Trend line breaks - Trend lines can be drawn connecting the peaks and
troughs of the CCI. When the CCI breaks a trend line, it confirms the
change in trend. Usually the break of the CCI trend line actually occurs
before the price breaks upwards - hence the CCI often being referred to
as a leading indicator. This is where the CCI really helps us by clearly
showing what wouldn't be obvious by looking at the price/MA combination
alone. Plus if one end of the trend line is in the (+) (-) 100 region, it gives
the signal more validity.
Notes on attached charts
1.) Eur/Usd. 1 hour.
• Red line indicates positive divergence in a downtrend, indicating a

possible change in trend.
• Green trend line – CCI breaks the trend line, which becomes the
line of resistance turned support.
• Entry is confirmed with CCI crossing zero line at 1530 (Indicated by

green vertical line)
2.) Eur/Usd. 4 hour
• Red line indicates negative divergence in an uptrend, indicating a

possible change in trend.
• Green trend line – CCI breaks the trend line, signaling a trade.
• Entry is confirmed with CCI crossing zero line (Indicated by green

vertical line)
WHO ELSE WANTS TO TRADE FOREX LIKE A PRO?

www.surefire-forex-trading.com
Good Trading
Mark McRae
This lesson is part of the 'Traders Secret Library” which you can see at
www.surefire-trading.com
Required Disclaimer
Information, charts or examples contained in this lesson are for illustrational and
educational purposes only. They should not be considered as advice or a
recommendation to buy or sell any security or financial instrument. We do not
and cannot offer investment advice. For further information please read our
disclaimer here
Hypothetical or simulated performance results have certain limitations. Unlike an
actual performance record, simulated results do not represent actual trading.
Also, since the trades have not been executed, the results may have under-or-
over compensated for the impact, if any, of certain market factors, such as lack of
liquidity. Simulated trading programs in general are also subject to the fact that
they are designed with the benefit of hindsight. No representation is being made
that any account will or is likely to archive profit or losses similar to those shown.

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Commodity Channel Index

The Commodity Channel Index (CCI) developed by Donald Lambert, is an

• Red line indicates positive divergence in a downtrend, indicating a

• Entry is confirmed with CCI crossing zero line at 1530 (Indicated by

• Red line indicates negative divergence in an uptrend, indicating a

• Entry is confirmed with CCI crossing zero line (Indicated by green

WHO ELSE WANTS TO TRADE FOREX LIKE A PRO?

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