Commodity Channel Index Indicator (CCI Indicator)

commodity channel index

Commodity Channel Index indicator (CCI) was introduced by Donal Lambert. CCI measures the variations of the price of a stock with respect to its statistical mean. Contrary to the meaning derived from its name, the CCI works well with any stock or index. High values of CCI show that the stock price is high compared to the average price and low values mean that the stock price is well below average price. Zerodha Kite charts display the CCI indicator accurately.

CCI Indicator Formula:

Commodity Channel Index Formula

How to set up Commodity Channel Index in Zerodha Kite?

commodity channel index setup
  • Go to MarketWatch.
  • Choose the stock you are going to trade.
  • Right click on the stock and select chart from graphic icons.
  • Chart window of the stock opens.
  • Go to studies. Select studies.
  • Go to Commodity Channel Index and click on it.
  • A small window opens with default parameters of the indicator.
  • Once the parameters are selected, the Done command is chosen, the parameters window goes off the screen and the indicator is plotted on stocks price.

How to trade intraday using CCI?

Commodity Channel Index Indicator
  • The indicator shows price trend and trading opportunities.
  • The picture above shows Reliance Industries stock price movement with respect to the indicator.
  • The chart shows 1 min. timeframe.
  • The strategy shows the price trend. Understanding price trend from this indicator is important before creating a position.
  • In 1 minute chart, traders may find many whipsaws which will be eliminated if longer time frames are used and this indicator is used with a combination of other indicators.
  • Create short position when CCI starts coming down after reaching overbought zone.
  • Exit from the stock or create fresh buy once CCI goes up after moving off from the oversold zone.

The Commodity Channel Index indicator can be used in a various way. It can be used as a trend following indicator. Many traders use the zero line cross as a trade trigger. They buy when the CCI indicator crosses above zero and short sells when it crosses below zero. It can also be used as a counter-trend indicator. An overbought zone is denoted by +100 and oversold zone is denoted by -100.

Many traders also trade the divergence in the Commodity Channel Index indicator. Another classic usage of the CCI indicator is in the Woodie CCI trading system developed by Ken Wood. In general the CCI is a very important indicator and both intraday as well as swing traders must have an idea on this simple yet powerful indicator.

Commodity Channel Index Indicator (CCI Indicator)

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