CCI aka Commodity Channel Index is an oscillator use to determine when the asset used for investment in the forex market has been oversold or overbought. This was introduced in the year 1980 by Donald Lambert. This oscillator helps in measuring the relationship between the price of the asset, the moving average price of the asset and the normal deviations from the average value. The indicator since inception has managed to bag ample popularity among traders all over and this can help in identifying the potential valleys and peaks in the price of the asset. Most investors thus use the same in combination with other popular oscillators to get reasonable values that can help in correctly estimating the changes in the direction of price movement for the asset.
The indicator is used increasingly to conclude the cyclical trends in currencies and equities and also in commodities. CCI measures the statistical deviation from the average. Being an unbounded oscillator, its value ranges from -100 to +100. Traders make use of this oscillator in a number of ways. The three most common ways in which the same is used are in retracements, in breakouts and in divergent trades.
Using CCI in retracements
Majorly the value lies between +100 and 100 ranges. Anything above +100 is said to be overbought, while below -100 is oversold. The price like with most other indicators corrects too many levels. Thus, when the value goes outside the above mentioned range, the trader should wait for the cross back or bounce back inside the range before starting a position.
Traders must first identify the direction of the trade. For a trader trading an hour chat, must first determine the daily trend. For someone trading a 15 minute chart should first see the direction of a 2 hour chart.
During uptrend the trader must wait until the CCI moves below -100 and cross back above this to go for a buy signal. Meanwhile for a downtrend, the trader must wait for the CCI to cross the overbought or +100 mark to create a sell signal. This can help in maintaining a 1:2 risk ratio.
The indicator is used increasingly to conclude the cyclical trends in currencies and equities and also in commodities. CCI measures the statistical deviation from the average. Being an unbounded oscillator, its value ranges from -100 to +100. Traders make use of this oscillator in a number of ways. The three most common ways in which the same is used are in retracements, in breakouts and in divergent trades.
Using CCI in retracements
Majorly the value lies between +100 and 100 ranges. Anything above +100 is said to be overbought, while below -100 is oversold. The price like with most other indicators corrects too many levels. Thus, when the value goes outside the above mentioned range, the trader should wait for the cross back or bounce back inside the range before starting a position.
Traders must first identify the direction of the trade. For a trader trading an hour chat, must first determine the daily trend. For someone trading a 15 minute chart should first see the direction of a 2 hour chart.
During uptrend the trader must wait until the CCI moves below -100 and cross back above this to go for a buy signal. Meanwhile for a downtrend, the trader must wait for the CCI to cross the overbought or +100 mark to create a sell signal. This can help in maintaining a 1:2 risk ratio.
