Сommodity Сhannel Index-understand flat, make money on trends
- VFX Blog
- For beginners
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.
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.
- 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.