CCI or Commodity Channel Index is an indicator of the type of oscillator used to measure overbought / oversold rates. This CCI indicator was first introduced by Donald Lambert in 1980.
In fact the initial use of this indicator is specific to know the overbought and oversold areas of the commodity market. But over time, this CCI indicator can also be used on other types of markets, such as forex.
Some traders divide CCI into 3 zones Namely:
Overbought zone
CCI value which is considered as zenuh zone is when the CCI value is above 100. Like other oscilator, after the chart entering the overbought zone then the chart will come back down. Therefore the area is used as the sell area.
Middle Zone
When the CCI indicator values are between -100 and 100 or bearada in the middle zone the market moves tend to be flat. So it is advisable for those who use the trending strategy to not open a position.
3.Oversold zone
If the CCI indicator enters the area below -100 then this means it has entered the oversold zone. Hence the direction of the next market tends to rise.
Besides being used as a measure of the saturation level, the Commodity Chanel index indicator can also be used as a signal entry. Here's how to use CCI to look for signal entry:
Signal Buy is indicated when CCI cuts the -100 level from below, on the pretext that the price has just moved from the oversold zone, so the next direction goes up.
Signal Sell is indicated by the CCI line crossing the 100 level from above, on the grounds that the new price leaves the oversold zone therefore the next direction goes down.
The use of CCI will be more effective on the bustling market conditions or on chaos conditions where buyers and sellers buy and sell each other.
In a very strong trend condition this CCI indicator is not working properly. Including a quiet market but dominated by one party (slow trend).
But the outline of buy signal and sell signal produced by CCI is accurate. To cover the shortcomings of this CCI indicator we can pair it with another indicator.
That is how to use CCI or Commodity channel index, which originally only for measuring saturation can now be used to generate signal entry. How to use a more detailed chanel index comodity will be discussed in further technical analysis material.
