EDUCATION: Commodity Channel Index (CCI)Hello, dear subscribers!
Today's topic is the Commodity Channel Index (CCI). To be honest, in sole use it is almost useless indicator but a lot of profitable strategies and indicators contain it, this is the reason we need to understand how does it work.
Definition
The CCI formula demonstrated on the chart. To make it clear it is the some math manipulation with the typical price momentum, the same as in momentum oscillators calculation, but here we have unbounded value. The CCI value higher than 100 associated with asset overbought condition, lower than -100 - oversold. It measures the strength of the trend, but usually this information is not actual.
How to trade with CCI?
According to fact that CCI is lagged indicator we are not recommended you to trade with it in sole use, because it generates a lot of fake signals or does it when it's too late. We can give you some signals which help you to build the complex strategy. When the CCI in overbought zone it can be the evidence of future price drop, in opposite case - the price increase. You can see on the chart the potential short and long exit and entry points, but keep in mind that there are a lot of cases when this analysis is invalid.
Summary
1)Don't use CCI as sole indicator
2)The main feature of this indicator is overbought and oversold conditions. When the other indicator demonstrates the potential price movement direction you can use CCI as confirmation.
