What is Commodity Channel Index (CCI) in Technical Analysis? - smithnighty

Description: The Commodity Channel Power Beaver State CCI is a momentum oscillator that was matured by Donald Lambert during the 1980s. The index number helps United States of America to gauge the on-line price of an asset with honor to its average cost over a certain flow of clock. CCI tends to stay on low when prices are trading agency below their average level. Similarly, CCI tends to remain high when prices are trading way above their average level. Hence, information technology is a very useful technical depth psychology tool to identify overbought operating room oversold levels.

CCI Calculation

Commodity Carry Index (CCI) calculation involves fetching the difference between the mean price

of a financial instrument and the moderate of those agency over a certain time period (default setting is 20 periods). next step involves comparing this difference with the moderate difference in prices over the very period of time. This gives us an theme of how volatile the instrument is. The worst mistreat involves multiplying the resulting fancy with a continual so as to plot the oscillator along a shell of +100 to -100.

In a nutshell,

CCI = (Avg Leontyne Price – 20 SMA of Avg Price)/ (0.015 * Mean deviation from the mean)

where, Avg Price = Regular Price = (High + Low + Close)/3

The constant 0.015 is used so as to make sure that 70% to 80% of the indicator readings remain inside a range of +100 to -100.

CCI Interpretations

Overbought and Oversold: The default overbought and oversold levels on the CCI are +100 and -100 respectively. However, one can adjust the bands to +200 and -200 for volatile counters and filtering trading signals further. However, one should notice that a protection can persist overbought for elongated periods after CCI crosses over +100. Similarly, a security can remain oversold for long periods when the oscillator dips below -100. Hence, a reading to a higher place +100 operating room -100 doesn't necessarily mean a change in trend is imminent.

Strong Trends: A reading above +100 on the CCI indicates that a strong uptrend is starting. Similarly, a reading below -100 indicates that the downtrend is assemblage momentum. However, one should wait for a favorable entree so much as a pullback to time their trades better.

CCI Divergences: When prices make a higher utmost just CCI makes a lower high, we get a Bearish Divergence. Similarly, when prices make a lower low and the CCI makes a higher low, we father a Optimistic Divergence which a great deal alerts us forehand of a tendency reversal.

To know more on various CCI trading strategies, delight detent present.

To learn more on tested and established trading strategies that can significantly boost up your trading results, please view attending our Eligible Food market Dealer (QMT) stock market course.

Source: https://www.abhijitpaul.com/what-is-commodity-channel-index-cci-in-technical-analysis/

Posted by: smithnighty.blogspot.com

Share this post