Frequently used in technical analysis in Forex online trading is the Commodity Channel Index (CCI), a popular technical indicator that specializes in the detection of change of momentum in price movements. The advantage of being able to designate a momentum change is obvious: it is a strong signal that the current trend movement nears its end. Like Stochastics and RSI (Relative Strength Index) looks the CCI to the deviation / deviation of the price of its statistical average. Prices are moving 70 to 80% of the time within a certain bandwidth (think of the Bollinger Bands) and when they start to deviate this may indicate a trend change.
How does the CCI
The CCI uses the concept Typical Price. This is the average of the highest, lowest and closing price over a given period (period is 1 candle at 1 bar at Candlestick chart or Bar chart). The "Typical Price" is therefore more representative of what happened in a given period than just the closing price, exactly as bar charts and Candlestick charts also representative of price action than a simple line chart.
Then look at the Typical Price on a number of periods, usually 14. The formula for the calculation of the CCI are a few other tricks pulled, but this is less important. You do the CCI today is no longer self-assess, in any forex trading software package, namely the CCI is present.
More important is to realize that the CCI actually the deviation of the price compared to the SMA (Simple Moving Average) measurement. If the deviation in power increases the CCI shows that see, and even if it abates. The latter is where the users of the CCI is about: it can decrease the spotting of a movement, which indicates an impending reversal.
How to read the CCI
Some Crossing
There are several ways you can use the CCI for technical analysis. 70 to 80% of the time moves the CCI is between -100 and 100. This 'bandbreeedte' is seen as normal price action. Values above 100 indicate an overbought situation (upward pressure on price), values lower than -100 on an oversold situation.
When the CCI crosses the 100 you would have to take a long position in the currency (or buy). Passes he -100 then you would have to take a short position. This is in contrast to the RSI, where the start of an overbought / oversold situation is a signal that in the future be the position you occupy, but no call to direct action.
Double Crossing
You can also do the CCI on the 'RSI way' occurred in Forex. You wait until the CCI breaks up the 100 and then breaks down. That is the signal that the momentum has turned down and the road will be deployed. The same goes for breaking the -100 line down on the road and then on the way up.
50 euro free markets
It is not that prices always immediately change course if the CCI the +100 / -100 for the second time breaks. As with all indicators you rather see this as important evidence that change is coming. So you can have an immediate position open, but it often happens that the prices for a while in the same direction as before, continue to move before the tide turns. What the CCI shows you is that sailing is out (as he crossed the 100 from above or from below -100), or that the speed increases (as he crossed the 100 from below or from above -100) .
What makes the CCI to such a valuable indicator
A famous saying among investors is: chase trends Amateurs, Professionals follow trends.
Amateur traders are often obsessed with finding the absolute top and absolute bottom. There is nothing they hate more than buying higher than the bottom or lower sales than the top. But the purpose of The Big Game Trading is not possible to find tops and bottoms, but to make money. Choosing tops and bottoms is difficult, so difficult that it fails more often than did. And while every time you stop / loss is activated (if you've already put it) but you keep trying to change that time to predict. Just as poker player who is always willing to pay too much for the chance that beautiful flush. Chasen so.
Following a trend is much smarter, because the probability that a movement is always greater throughput than if he has already begun as he has yet to begin. A successful trader is hooked to a movement already begun, he follows the trend.
The CCI is actually a derivative of a derivative, since it is the moving average of a moving average. The signal from the CCI will therefore often take place if the price part of the course change has been made. Although you are so part of the action lacks (you do not buy the absolute bottom and sell not the top) is the probability that a profitable position opens up much larger.
An alternative way to the use of CCI
The CCI is made popular by trader Ken Wood, by everyone 'Woodie' mentioned. His contribution to Technical Analysis was thought (or perhaps even discovery) to look for patterns on the CCI itself, instead of the Candlestick / bar charts. A method that is also for other Technical indicators is used.
What Woodie is doing is looking for double tops / double bottoms, trendlines, elliot waves and many other patterns directly on the CCI itself. The big advantage is that the CCI as many technical indicators, though a lot of market noise is filtered out (it is the derivative of a derivative) and that in the CCI line observed pattern therefore of greater value than if the pattern on a candlestick chart is noted.
If the CCI indicator is where you gladly trade we advise you to do to get more information about Ken Woods's setup to gather.
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