Although novice traders tend to pay little attention to CCI in the beginning of their lerning curve, later they return to discover amazing potential and beautiful simplicity of the CCI indicator. There is a variety of CCI indicators, just what is cci indicator in forex looking at the screenshot below with various CCI versions, it becomes understandable – there is huge package of trading methods behind each simple and custom CCI indicator.
CCI indicator was created to identify bullish and bearish market cycles as well as to define market turning points, market strongest and weakest periods. Designed for commodities, CCI has quickly found its application in other markets including Forex. 100, there is a strong uptrend confirmed, therefore traders should open a Buy position. Opposite true for downtrends and readings below -100. Since 1980 when CCI indicator was first introduces, traders have found lots of ways to interpret CCI and expand trading rules. An aggressive way to enter the market is to react to CCI’s line crossing its zero level. When CCI moves above Zero, traders would Buy the currency expecting a newly changed trend to hold.
Vice versa, when CCI falls below zero, traders would Sell looking to benefit from early signals of an emerging downtrend. Sell depending on the direction of a crossover. 100, a strong uptrend has been established. Hold on to a Long position, but prepare to exit as soon as beautiful tall candlesticks yield place to smaller reversal candles with long shadows and small bodies. 200, and an extremely oversold zone – CCI reading below -200. With what we know so far, we can already read and trade with CCI indicator. 1 – CCI is in an overbought zone.
The moment it entered there, we could have placed a Buy order, since we know that a strong uptrend has been established. 2 – CCI rises to an extremely oversold level, this is where we know that the reversal is near, so the measures are to tighten our stop loss and either exit as we spot a reversal pin bar candlestick or wait till CCI exits below 200. 200 zone we should close all remaining Long trades and look to Sell. With CCI exiting from an extremely overbought zone is a perfect opportunity to initiate our first Short trade.