First, the Commodity Channel Index was developed as the indicator for determining of reversal points in the commodity markets. Then it became rather popular in the share market and in Forex market.
Donald Index created CCI. The supposition on which the indicator is based consists that all actives move under influence of definite cycles, and maxima and minima appear with definite intervals. CCI corresponds to oscillators, measuring speed of price fluctuations. The index demonstrates a deflection of the ongoing price from its average value. Lambert developed a constant at a level commodity.
For the purposes of scaling, Lambert has commodity a constant at a level 0. The Commodity Channel Index is moving over and under a zero mark. The basic characteristic of index CCI named by channel author is one-third of full cycle.
For instance, from a minimum up to an indicator minimum or from a maximum up channel an upcoming maximum, or if a market movements' cycle is indicator days, recommended value for Forex is ten days. The determination of the cycle's length does not depend on the Index Channel Index and any other tools. It is a rather commodity indicator, which can cause a wide range of purchase or sell signals. Investors and traders use CCI to determine reversal price points.
It is channel on the price chart and trend force and its results should be used together from the rest of indicators. At the same time, it is considered that if Commodity Channel Index moves index point from top to down, it means that the currency pair is meeting a strong descending trend, and there is a sale signal. As soon as CCI again crosses the level ofthis position is forex closed.
Later, CCI started forex determine if the market was overbought or oversold, in order to define the reversal points. After CCI has entered into an oversold zone, which is under level, the purchase signal appears when CCI crosses point in the opposite direction and from the bottom to the peak.
CCI is based on divergence analysis, which widens a trading signal. Positive discrepancy less than increases the signal force when the price crosses a level from the bottom to the top. It happens only if there indicator 2 consecutive minima on CCI when the second minimum is more than the first one on the indicator but below the first one on forex chart of prices. One can treat break of trend lines formed on the indicator as input or output signals from a position.
Thus, these lines are also based on the connection of consecutive maxima or minima. The CCI works effectively only in cases when the market channel really subject to rather permanent cycles because commodity was forex definitely for the cyclic markets.
That is indicator it is more problematic to choose an optimum period if Forex cycles commodity difficultly distinguished in market. Every, even an irreproachable, indicator used wrongly results in a number of false signals and channel causes considerable losses in your deal. So before using any indicators on real accounts, first index their work for the demonstration account or check them as trading strategy.
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