How to Use The Commodity Channel Index In Forex Trading
The Commodity Channel Index in forex trading is an indicator which was developed by Donald Lambert. Like most indicators, its function is to determine the conditions of overbought and oversold.
The main prerequisite to determine the accuracy of the CCI value is the time frame. Since CCI tries to foresee the cycle using moving averages, the more the moving average is in sync with the site, the more accurate the indicator will be. This principle is valid for the most part of oscillators.
Although most traders use twenty as a default value for the time span, a more accurate interval could reduce the occurrence of false signals. Here below are a few step-by-step forex tips to determine an optimal value for the CCI.
- Open the yearly chart for a given cross
- Find two minimum and two maximum values on the chart
- Take note of the time interval between these two values (cycle length)
- Divide that interval by three to find the optimal cycle length.
Once the right interval for the CCI has been found, the oscillations can be interpreted as follows.
Possible sell signals:
- CCI is over 100 and is starting to go down
- CCI is moving downwards whereas prices keep their positive trend or are oscillating.
Possible buy signals:
- CCI is below -100 and has started to go up
- CCI is moving upwards whereas prices keep a negative trend or are oscillating.
“Possible” signals means that they should always be confirmed by other indicators like for example pivot points. Other indicators to be used together with the CCI would be candlestick charts, or moving exponential averages at sixty days, or other averages that can adapt to the movement of the cross.
CCI can be quite effective in your forex trading strategy, to cyclically determine buying or selling points. In order to best use it though, it is necessary to be accurate in calculating a time interval that will adapt to our price line, and use it together with other indicators.
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