Commodity Channel Index (CCI)
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THE COMMODITY CHANNEL INDEX (CCI) is an oscillating indicator that can show you how bullish or bearish traders are toward a currency pair and how dramatic those sentiments are. You can see the volatility of a currency pair with the CCI, much like you can with Bollinger bands.
The commodity channel index (CCI) is based on both the average value of past price movements and how far those price movements have strayed from the average—how volatile the price movements have been.
If the average price of the currency pair is moving higher, the CCI will also be moving higher. Just how quickly the CCI moves higher depends on how volatile the currency pair is. If it is more volatile, the CCI will move higher faster. If it is less volatile, the CCI will move higher slower.
If the average price of the currency pair is moving lower, the CCI will also be moving lower. Just how quickly the CCI moves lower depends on how volatile the currency pair is. If it is more volatile, the CCI will move lower faster. If it is less volatile, the CCI will move lower slower.
The CCI moves back and forth, crossing 100, zero and -100 as it cycles through its progression.
Bullish signal: CCI cross above -100
Bullish signal: CCI cross above +100 (OverBought)
Bearish signal: CCI cross below +100
Bearish signal: CCI cross below -100 (OverSold)
CCI length: 20
High level: 100
Low level: -100
The commodity channel index (CCI) produces trading signals as it crosses back and forth above and below both 100 and -100.
Entry signal—when the CCI rises above 100 and then turns around and crosses back below 100, you can sell the currency pair knowing that buyers have exhausted their momentum and the currency pair is likely to decline in the near future. When the CCI falls below -100 and then turns around and crosses back above -100, you can buy the currency pair knowing that sellers have exhausted their momentum and the currency pair is likely to rise in the near future.
Exit signal—when the CCI turns around and starts moving higher after you have sold a currency pair, place your stop loss just above the nearest level of resistance. If the currency pair turns around and moves above resistance, your stop loss will take you out of the trade. When the CCI turns around and starts moving lower after you have bought a currency pair, place your stop loss just below the nearest level of support. If the currency pair turns around and moves below support, your stop loss will take you out of the trade.
