Stock Trading Signals and CCI
Stocks and Commodity Cycles. Merchandise Channel Index (CCI) was created by Don Lambert. It is used to detect when the loop starts and ends. Therefore, it has been widely used as a trading signal generator for stocks and commodities.
Even inexperienced observers are aware that stocks exhibit cyclical and trend behavior patterns. Obviously, the trader wants to buy early when the stock starts, and sell when the trend ends. CCI can help to detect these trends. It checks the current price based on past prices and does not use any weighting factor that artificially distorts the original data. For example, it uses simple averaging rather than overweighting data at one end of the measurement period, such as on a weighted moving average or exponential moving average. Comparing the current price to a simple moving average also provides a move reference point that always reflects the current condition without offsetting it. The CCI equation has a divisor that adjusts to reflect price variability. The divisor is smaller when the stock is non-trend (when the stock exhibits less variability) and when there is a breakout (when the stock shows large variability). Therefore, it reflects the price volatility of prices and patterns. In statistics, such numbers are called "variability measures".
"Current price" is not the closing price, but the average of high, low and closing prices. The divisor (or "measure of variability") is the average of the moving average of the "current price" from the "current price" during the measurement. The CCI calculation is scaled so that 70% to 80% of the random fluctuation falls between -100 and +100.
When Don Lambert developed the CCI, the measurement cycles were tested for 5 days, 10 days, 15 days, and 20 days. In spite of the fact that shorter cycles such as the detection of a 10-day CCI are good for various trend lengths, it is not good to detect "breakouts", he argues. Most indicators give an exit signal at extreme prices. On the other hand, the CCI gives an exit signal at or before the extreme price of the abnormal frequency. In order to avoid excessive frostbite, it is possible for Lambert to take 20 days as the standard measurement period in a shorter measurement period. However, traders are encouraged to experiment to find the period that best suits them. Many traders prefer to use a combination of 14 days, some prefer to use the period. Lambert suggests that the period chosen should be less than one-third of the cycle length (cycle length is twice the trend length). This means that the ideal CCI measurement will be less than 2/3 of the trend length. For example, the standard 20-day period is one-third of a 60-day period with a 30-day uptrend and a 30-day down trend. Thus, a 20 day period is most effective for a trend of more than 30 days. You must determine for yourself the trend duration of the CCI to be optimized.
Our own graphs are drawn with zeros and horizontal lines at +100 and -100. Outside these lines, we plot the other two at +200 and -200 respectively. The latter is considered an extreme reading. The rules for dealing with CCI were originally designed for short-term commodity traders. When the CCI exceeds the +100 line, it is a buy signal. When it falls below this line, it is a sell signal. Similarly, when CCI falls below -100, it will enter short selling, when CCI exceeds -100, short selling will be closed. The idea is that these areas represent a relatively high-momentum, few days can capture small profits of the occasion. Since CCI was originally developed, other methods of using it have been found. Here are some of the ways our own traders use CCI.
1. Buy when the line moves from below ("F" in the chart) to above -100, when the price falls below +100 ("E") or any rise above +200 Sell. If it rises above +200, some traders prefer to wait until it falls below that level to sell.
2. Buy whenever the line is below -200, or wait until it exceeds -200. When sold from below to below +100.
3. Sell or buy when it traverses an uptrend line or a down trend line, respectively. Traders use trend lines and pattern analysis on the CCI charts as they are on the stock chart.
4. When the CCI rebound from the zero line to buy. When the CCI reaches the zero line, the average price of the stock is the moving average used in calculating the CCI. Therefore, when the stock rebounded its 20-day moving average (that is, the average price of its moving average line), 20 days CCI zero line will rebound. This is often considered a good time, because the stock not only back to short-term support (to provide a relatively low entry price), but also through the average rebound to re-confirm its upward trend.
Chart schemas, which are usually associated with price data, have the same meaning when they are found in the CCI chart. For example, the top of the head and shoulders are made up of three high points, with the center height greater than the height of either side. The head and shoulder bottoms are made up of three low points, with the center below the low point on either side. When the price of a stock is below the price on the price chart, it is considered a sell signal. This is also the case when this occurs on the CCI chart. Likewise, the inverted or inverted head and shoulders pattern may give a buy signal. The crossing of the neckline in the inverted head and shoulders form on the CCI will be the triggering event. Compare CCI (Signal Line Penetration, Head-Neck-Shoulder Line Penetration, and Other Signals) to the signal behavior of the signal and the stock at these signal points. CCI can be infinite predictive.
The indicators are not perfect. No indicators are, but there are ways to address these shortcomings. For example, you can wait for a day or two to see if the CCI is reversed, or wait for a larger move on the line to wait for a "reject" (or "bounce") to resolve the false buy signal, the +100 or -100 lines after the crossover. If the CCI line returns to -100, reverses, and continues upward after the cross-100 line, the buy signal can be assumed to be given when it bounces from the -100 line. Since the "rebound effect" does not always occur, it is good to remember that the CCI can be used in conjunction with other indicators in conjunction with the analysis of the price model itself. For example, when the stock price plummets by an average of 20 days, the CCI crosses above -100 lines, which would be a good reason for traders to wait and see what will happen. The 20-day average represents resistance. The possibility is that the stock will bounce the average down again. On the other hand, if the 20-day moving average decelerates during its descent or flattening process, the stock can penetrate it well.
By comparing CCI to the stock chart and analyzing the CCI model with the stock model, it is possible to understand the behavior of the stock significantly and to greatly assist in buying timing and sales.
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