Commodity Channel Index was initially developed for the commodities markets and was used to search the reversal points. In other words, this indicator is reversal or countertrend by its essence.
CCI indicator: description
This indicator was created thanks to the work of Donald Lambert. Commodity Channel Index is based on the assumption that all trading tools move with the certain intervals. In addition, the CCI indicator allows calculating the movement rate of prices.
Commodity Channel Index can oscillate between marks of -100 and +100. The zero mark is located in the middle of this range. A number of periods that are used in its work influence the percentage of the values of binary options. For example, if the indicator has a lesser number of periods, then it is considered to be the short one, and it will be more volatile, a lesser amount of its values will be in the range from +100 to -100.
As for the recommendations of the CCI binary options’ author, he has recommended using one third of the total cycle (for example, from one minimum to the next minimum or maximum). For example, if the oscillatory cycle is 30 days, it is recommended to set the indicator’s value of 10 days. At the same time, the cycle’s length is determined regardless of the indicator and is completed by totally different methods.
Usage of Commodity Channel Index
It is necessary to note that the CCI indicator is very versatile and can send many signals for both Put and Call options’ purchase. The majority of professional traders use this indicator in order to determine the reversal points, as well as the minimums and maximums on the price charts. As with the majority of other auxiliary tools, the best way to use this indicator is in combination with other in order to attain greater accuracy of the sent signals.
The author himself has recommended to wait until the indicator’s movements that will exceed the +100 and -100 range, sending, at the same time, signals to buy the Put and the Call options. Given the fact that during the 70% of the time the indicator’s line of the binary options’ Commodity Channel Index stays within the above mentioned trend, the trading signals appear on a chart only within the 30% of the time.
When the binary options’ indicator crosses the line of +100 from down to up, it shows that the trading tool is located in the zone of the strong ascending trend. In this case, the signal to buy the Call option appears. Otherwise, if the indicator’s line gets in the -100 zone from up to down, the clear signal to buy the Put binary option appears.
If the breakout of the trend’s line occurs on the indicator’s line, then we can also consider the purchase of the Call and Put binary options. At the same time, you can determine trends on the indicator’s line by the maximums and minimums, which grow sequentially. If the indicator’s line breaks the trend’s line in the zone below -100, then there is a probability that the trend will reverse, and the ascending movement in the market will begin. If the line of the binary options’ Commodity Channel Index is located in the zone above +100 and the crossing of the trend’s line occur downwards, the probability of the switch from the ascending movement to the descending one appears.
One disadvantage of this indicator is the fact that it is considered that this indicator is created only for the cyclic markets. So, you will have to select accurate period’s settings for this auxiliary tool in the markets where it is difficult to monitor the cycle.