The Commodity Channel Index
was developed as the indicator for determining of reversal points in the commodity markets. But then it became rather popular in the share market and in the market of foreign exchange trading . CCI was created by Donald Lambert.
The supposition on which the indicator is based consists that all actives move under influence of definite cycles, and maxima and minima appear with definite intervals.In foreign exchange trading CCI corresponds to oscillators, measuring speed of price fluctuations. The index demonstrates a deflection of the ongoing price from its average value. Lambert developed a constant at a level 0.015 that approximately from 70 up to 80 % of CCI values were between levels -100 and +100 -- for the purposes of measurement.
The Commodity Channel Index
is moving over and under a zero mark. The percent of Commodity Channel Index values (between +100 and -100) correspond to the number of the periods used for its building. Shorter - with smaller quantity of the periods - CCI will be more inconstant, and if less - its values will be placed in a range section between +100 and-100. Correspondingly,in foreign exchange trading the greater number of periods will be used for CCI measurement, the more values percent of the indicator will be between the points of +100 and -100.
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The basic characteristic
of the CCI named by the author is one-third of full cycle. For instance, from a minimum up to an upcoming minimum or from a maximum up to an upcoming maximum, or if a market movements' cycle is thirty days, recommended value for CCI is ten days .
Important:
The determination of the cycle's length doesn't depend on the Commodity Channel Index and any other tools. It's is a rather many-sided indicator which can cause a wide range of purchase or sell signals. CCI is used both traders in foreign exchange trading for determining of reversal price points. It is extreme on the price chart and trend force and its results should be used together from the rest of indicators.
How to use CCI ?
Here is an advice on the work with the CCI index in case it moves above +100 and below-100 and sends sell or purchase signals.
Buy or sell signals
happen 20 - 30 % of the time while from 70 up to 80 % of time Commodity Channel Index's value is fluctuating between +100 and -100. In foreign exchange trading it's supposed that if CCI overcomes the level of +100 from below upwards, it means that the currency pair is moving in the direction of the strong ascending trend, thus there is a clear purchase signal.
And once CCI
goes under +100 the position is supposed to be closed on a return signal. At the same time,in foreign exchange trading it's considered that if Commodity Channel Index moves to -100 point from top to down, it means that the currency pair is meeting a strong descending trend, and there's a sale signal. As soon as CCI again crosses the level of -100 this position is considered closed.
