The Commodity Channel Index (CCI) is an oscillating indicator in technical analysis created by Donald Lambert in 1980. Although its name makes you think of a "commodity", it is also very useful. used in stock trading as well as foreign exchange.

The CCI index is used to calculate a statistical standard deviation from the mean. It can produce fluctuations in the +100 and -100 levels and is used by traders in a lot of cases, three of which are:
  • Use CCI in price recovery sessions
  • Using CCI to predict breakout (sudden increase and decrease in a short time)
  • Use CCI to predict divergence trade
This post will cover mainly how the first use of the CCI indicator is - using CCI to trade rally.

Applying CCI in Retracement

About 70-80% of the value of this indicator falls between +100 and -100. Above +100 is considered overbought and below -100 is considered oversold. Similar to other overbought/oversold indicators, this means that the price will correct itself as it enters these zones. So if the values "run out" from this range, a trader specializing in recovery sessions will wait until they "run back" before placing an order.

Rules for applying CCI in Retracement

First, determine the direction of the prevailing trend at the moment. If you are trading a 4-hour chart, determine the direction of the trends on the daily chart. If you are trading a 15-minute chart, look for directions on the 2-hour chart.

The trend is in an uptrend

If the trend is up, wait for the CCI to fall below -100 (oversold territory) and go back above -100, which is a signal to place a buy order. At this time, place your Stop Loss just below your Swing low and expect profit to at least double your Stop Loss, then you are maintaining a profit and loss rate of at least 1: 2.

The trend is in a downtrend

Conversely, if the trend is down, wait for the CCI to exceed +100 (overbought zone) and turn down below +100 to create a sell signal. Similarly, when the trend goes up, you should place the Stop Loss just below the reversal bottom and expect profit at least twice the level you placed your Stop Loss. The profit-loss ratio will then be 1: 2.