| COMMODITY CHANNEL INDEX (CCI) – INDICATOR |
| Written by Ivan Yurukov |
| Friday, 18 December 2009 10:05 |
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CCI is Oscillating indicator that can show you how bullish or bearish traders are to the market of a currency pair and estimated strength of these sentiments. By using CCI you can see the volatility of the currency pair, the same way as you see it by using bollinger bands. How to construct CCI CCI is based as on the average value of past price movements as well as on how much longer these price movements remained away from the average value . Thus traders receive indication of how volatile these price movements were . If the average price of a currency pair increases the CCI will also rise.
The speed of the CCI indicator depends on the volatility of the currency pair. If this movement is volatile, the CCI will increase faster. If the movement is not so much volatiled, then the CCI will increase more slowly. If the average price of a currency pair slows down the CCI will also decrease. The value of CCI is moving up, down, crosses 100, and zero, (-100) and other values in the process of passing through various stages in its development. Trading signals from CCI CCI index generates trading signals while moving up and down and crosses the boundaries 100 and -100. Signals to detect the position - when the CCI index first rises above 100 and then falls below it, we find ashort position in the currency pair (we perform sales) and we assume that buyers have already used the power of the upturn and it is likely that the currency pair will soon become cheaper. Signals to close the position - when the CCI index changed direction of movement and begin to rise after we have sold the currency pair, then we should place a stop order to limit the loss just above the nearest resistance level. If the currency pair reverse the movement and increases above the resistance level than our position will be closed. If the CCI index reverse the movement and its value starts to decrease once we did buy the currency pair we should put a stop to limit the loss under the nearest support level. If the currency pair reverse the movement and the price falls below that level of support the stop will be activated and the loss will be retrenched. Advantages of CCI
- Help to identify the volatility of the currency pair.
- Help to identify potential turning points of price movements of the currency pair.
- Help to confirm the strength of the current trend Disadvantages of CCI - Far behind the market because the data used for the calculation of CCI is historical. Nobody can tell if this will be repeated in the Future.
- You can not guarantee the points of reversal of the currency pair.
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| Last Updated on Friday, 07 May 2010 10:36 |
