This indicator was created by Donald Lambert in 1980 and its trading application is to find out if a given equity is over-bought or over-sold. When you open the CCI, you will see the two main levels: +100 and -100. When indicator`s line is above the +100 mark, the market is overbought; when indicator`s line is below the -100 mark, the market is oversold. To be honest, CCI is an oscillator, but many trading platforms place it in the trend indicators’ section.
It is really important to point out that divergences are formed pretty often in the CCI. A divergence is a difference in the direction of the price and the indicator. For example if the price is falling, but the CCI is showing upward movement, then we have a divergence. This phenomenon is actually pretty useful for the traders, because this is a strong trading signal that indicates a possible reversal. Whether it is a sell or buy signal, it depends. You have to take a look at the overall state of the market, to check for other signals and if you get a sell confirmation, then this is enough proof for a profitable sell. Generally speaking, this is a very strong signal and is important to know that it is also a highly volatile indicator; that is why we recommend using it in low-volatile cycle market, where the trend is clear. However, CCI is generally used in the commodity market. Carefully set your trading strategy and use CCI wisely.Trend Lines Moving Average - MA Parabolic SAR
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