CCI indicator or how it is profitable to enter the market
Trading channel index, or CCI indicator, was created 39 years ago by Donald Lambert. The technical instrument belongs to the group of oscillators and, like most of the representatives of this category, allows you to determine when the market enters an overbought or oversold state. This oscillator is considered a linear oscillator. It is visually similar to RSI, but has its own positive points and nuances. Let's get acquainted with them so that they could be easily and usefully used in trading.
The CCI indicator and its main characteristics
The technical tool described shows how the current price deviates from MovingAverage. It is up to the exchanger to decide what period the moving will have. The stronger the price deviates for a short period of time from its average value, the stronger will be the oscillator line from the value of "zero". In case of a bullish trend - up, in case of a bearish one - down. The main time period the indicator line stays within the range, which forms the levels marked "100", only with different values: negative and positive. When the line leaves this corridor, an over-sold or overbought signal appears. This signal is considered to be the basic one for the CCI indicator, the description of which has just been given. The CCI trade indicator
Let's get acquainted with some features of the technical tool:
Like most oscillators, it is more suitable for performing filter functions. But the CCI indicator can also be used to generate complete signals that allow entering the market with profit.
There are no limitations on "100" levels with plus and minus. The Trading Channel Index line can reach the level of minus 200 or even 300. In this context, it will tell only about the great strength of the downtrend and the state of deep oversold.
Divergence is considered one of the strongest signals for such indicators in Forex trading, as well as for any oscillator. Clear divergence of the price and the indicator are formed much less often than usual entrances to specific areas. Accordingly, the divergence also looks more reliable as a signal. It is possible to determine the divergence or convergence if 2 minimums (or maximums) on the chart and the indicator are connected using straight lines. If one of them is directed towards the trend, and the other - towards the other direction, the trend change should be expected soon.
Buying and selling
Now let's consider CCI and indicator application. The input of the shorts occurs when the last localmax is placed above its predecessor (the connection line is directed upwards) and the last localmax is placed below its predecessor (the line shows downwards). You should buy when the downtrend develops, the last localmax is lower than its predecessor, and the last localmax is higher than the previous one on the Techalysis tool. The exit from deals is possible using CCI signals of the indicator - we will tell you how to use it now. The lines of the technical instrument should cross the level that is opposite. All deals need protection - stop-loss should be set on every resistance/support or local extremum.
As you can see, the oscillator can give the trader quite a lot of hints. It is enough to bring the trade to a profitable level. Various modifications of the CCI indicator can be found in the network. You can interact with any financial instrument, because their principles are similar.