The Zero Line Reject (ZLR)
The Commodity Channel Index (CCI) is a momentum-based oscillator used to help determine when an investment vehicle is reaching a condition of being overbought or oversold.
Indicators are tools that measure trends (to be used in directional markets) and
oscillators are tools that measure momentum(to be used in sideways markets)
Directional markets are defined by higher highs in price and higher lows in the price for an uptrend and
lower highs and lower lows in the price for a downtrend
Most indicators and oscillators are lagging for the simple reason that almost all these tools are derivatives.
But we are in luck; the CCI has leading qualities if properly applied.
The following chart illustrates a possible short entry signal warning pointed out by the CCI.
The ZLR is defined by a CCI (turquoise line) reading near the zero line(thin horizontal white line) with the turbo line(yellow line) overtaking to indicate exhaustion of short-term momentum and a fairly large distance between the CCI and the turbo
If you follow along the vertical line in the chart up to the price line, you see that this warning signal of a possible short entry comes early and is followed by a small red doji for price after that to follow to the downside.
Another signal for a long entry warning can be identified in the following chart:
(charts are courtesy of tradingview.com)
Following along the price line, we see a three-red candle decline in price towards a fractal support line(thick horizontal white line)
At the same time, the CCI (turquoise line) approaches near the zero line(thin white horizontal line)
The CCI, overtaken by a straight decline of the turbo(yellow line) with a reasonably far distance between the CCI and the Turbo reading, completes the signal.
Following the vertical line back up to the price shows that this signal is leading and is followed by a small green inside bar before the price moves higher another bar later.