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Сommodity Сhannel Index-understand flat, make money on trends

Сommodity Сhannel Index-understand flat, make money on trends

The CCI (Commodity Channel Index) indicator was developed in 1980 by the exchange trader Donald Lambert as a result of an analysis of the volatility of commodities and confirmation of the hypothesis of price cyclicality. The tool is a good variant of how to make money on binary option in the currency and cryptocurrency markets and is included in the basic set of technical tools of all popular trading platforms.


Hypotheses about the cyclical nature of the market have a long history; it is enough to recall the Elliott wave theory. Lambert, in his book Commodity Channel Index as a Cyclical Trend Trading Tool, once again confirmed that price fluctuations are not a chaotic process and are subject to technical and fundamental goals.


The indicator can be used on any assets and gives a lot of winning binary signals that determine the beginning and end of the cycle, both in amplitude and time. The calculation algorithm assumes that if the price deviates from the moving average by the so-called “characteristic” deviation, we can talk about a probable trend change or the beginning of a correction.


CCI works like a typical oscillator – the result of calculations is a graph showing the current stage and characteristics of the market cycle. The exit from the extreme zones of + / - 100 gives a signal that you need to look for an entry point in the opposite direction to the current trend.


Calculation algorithm


How the formulas look like can be found in the textbook on technical analysis, it is important to understand the meaning of the main stages of calculation options trading signal


1. The "typical" price is determined, one of the main indicators of cash flow. It is the arithmetic average of the current Low, Close and High prices. If the estimated typical price is higher than the previous value, the flow is considered positive and the market should grow, if less, the flow is negative, the CCI decreases, as does the market as a whole; 


2. The Moving Average of the typical price is calculated. Thus, random fluctuations are removed and the trend is seen more clearly. Especially on the cryptocurrency market;


3. The next one is the median (probable) deviation known in statistics as deviation. It is used to determine whether the market is overbought or oversold;


4. At the last stage, the Commodity Channel Index scales the result by multiplying by 0.015 or the "Lambert constant". Thus, 70-80% of the data will be between the levels of +/-100, which will allow a auto binary trader to filter out the periods of flat and no trend.


There are options in which you can change the value of the constant, but there is no data yet that the indicator in this case gives better results than the base one.


Settings and configuration features


The CCI indicator, as a standard tool of popular signals binary review, is shown in a separate terminal window. There is a balance (zero) line, the standard for oscillators, and two overbought and oversold levels: +/- 100 or +/- 200.


The longer the calculation period, the less volatile the indicator is and gives more reliable signals. Accordingly, a decrease in periods makes the chart very sensitive to “market noise” and a large number of false binary signals, especially in the extreme zones.



The value of the periods for crypto trading signals should be selected individually for each asset, taking into account the average volatility, working timeframe, a trading strategy (scalping, swing trading, medium-or long - term trades) and depending on the comfortable trading style of the trader.


According to the author, the indicator should use the value of 1/3 of the full market cycle as the basic parameter. For example, if the average cycle is 1 month (25-30) days, then you should test the values of 10-12 periods. In the real market using trading computers multiple monitors, this strategy only works well in the futures market, where expiration dates are known as the end of local cycles and predicted volatility. 

For currency pairs and medium-term exact binary options strategies (timeframes from H4 and higher), good results were obtained on periods of 20, for long-term transactions, at least 60 is recommended. For intraday trading on the main currency pairs, you can not change the standard 14 periods, the main thing is to identifying the presence of a trend, which can not be done alone by oscillators-additional confirmation is required, for example, from the Moving Average.

During the publication of important fundamental news and statistics, we do not open options 30 minutes before the news and 30 minutes after the publication; cautious traders can close current deals. To control the events, we use the economic calendar included in the all popular binary trading platform!

CCI indicator as a source of trading signals

The basic interpretation is the same as for all other technical oscillators: all movements within the range of +/- 100 will be considered random market movements that do not deserve the attention of the trader. When the chart goes to the extreme zones outside the range, you can start looking for trading binary signals.

Basic free binary signals:

  • Open the CALL-option when the CCI chart crosses the "-100" level upward - exit from the oversold zone;
  • Accordingly, we open the PUT-option when there was a top-down crossing of the "+100 " level - exit from the overbought zone;
  • The reversal will be faster if +/- 200 lines are crossed.

Beginners in crypto trading are recommended to wait for additional confirmation in the form of crossing the zero level and only then open a trade.


The author recommends closing positions when the indicator reverses downward for buying, upward for selling. Again, this approach is acceptable for the futures market or the minimum of medium-term transactions. For more volatile cryptocurrencies, it is better to follow cautious money management and close in binary options software free signal if the broker allows when the indicator is "hovering" at extreme values or near the zero lines.

Binary options signal service can use CCI as a common input filter. For example, it is better to skip the CALL-option when the indicator line has broken or is approaching +200 - the uptrend is almost over and is preparing for a reversal. Also, we are not looking for points for a PUT-option when the "bottom" of -200 is reached and the bearish trend is over. In the case of a steady rise or fall to the zero levels, you can try to add a profitable position or open a new one in the direction of the trend.


A divergence in the movement of the price chart and the indicator (divergence) will also be a strong signal. As well as the breakdown of trend lines based on consecutive local max and min: breakout upwards - entry points for BUY, breakdown downwards - open SELL.

The Commodity Channel Index shows the ratio of the strength and speed of the current trend. Binary options free reversal signals work better on timeframes from H1 and higher, it is not recommended to trade on smaller intervals for beginners because of a large amount of market "noise". You should also refrain from using it in speculative and news periods when a sharp influx of volumes in a short time "breaks" the logic of oscillators.

Use with other technical tools

First, let's see how to use the CCI indicator according to the rules of the popular Woodie strategy. Two-color histogram according to the MACD principle, the presence of "slow" and "fast" CCI working as an intersection of the Moving Average that increases the number and quality of binary signals free.




On currency pairs and cryptocurrencies, stable real binary options signals are obtained from the classic combination of "CCI oscillator + trend indicators + additional oscillators". In our case, this is the Simple Moving Average and the MACD.


If the broker gives to close the option before the expiry, we do it (even if it is in profit!) when the opposite live trading signals appear: repeated reverse crossing of the Moving Average with a rapid or relative change in the direction of the histogram MACD.

Summarize…

Despite the positive statistics and feedback from the live Forex trading room, do not forget that the settings were originally developed for the cyclical market of stocks and futures, where regular periods of price changes from maximum to a minimum are easily determined. For volatile assets, this means that you need to look for at least one additional confirmation by trend instruments and oscillators that calculate the market behavior using other methods.

Since market cycles are rarely found on the chart in the standard form (Elliott wave models, correct working out of graphical reversal patterns, and others), setting up the CCI indicator turns into a difficult task, historical testing does little to analyze the current situation. 

You need to control the current market situation, but as a universal use as a main auto binary signals, see how the CCI indicator works with periods of 9-50, timeframes from H1. If you have experience in the absence of speculation, short-term options on M5-M30 are acceptable.



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