Commodity Channel Index (CCI)
Originally developed by Donald Lambert in the eighties, the CCI measures the position of price in relevance to the average price.Why should I use it?
The CCI is yet another popular tool in Technical Analysis you can use for spotting overbought/oversold levels, this indicator will easily point out potential buy or sell signals when the trend's direction is likely to correct it self, or even change completely.How does it look like?
The CCI is a one-line indicator which is drawn under the price chart. It will move above and below the key center value zero.How does it work?
The CCI will indicate the price is overbought (trading too high) when the CCI indicator line is crossing above the 100 level. A signal to sell is then generated the next time the CCI line is moving back under the 100 level.The CCI will indicate the market is oversold (trading too low) when the CCI indicator line is crossing under the level -100. A signal to buy is then generated the next time the CCI is moving back above the -100 level.
Example
Below is a EUR/CAD chart with the CCI indicator implemented under it.The CCI is dropping well under -100 around Sep 21 indicating the price is oversold. When the CCI is moving back above -100 it is then triggering a buy signal.
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