The Commodity Channel Index (CCI) is a momentum-based forex indicator that helps traders identify overbought and oversold conditions, as well as potential trend reversals. In this guide, we’ll explore how CCI works, its advantages, and the best strategies to trade with it effectively.
The Commodity Channel Index (CCI) is a momentum oscillator developed by Donald Lambert to measure the strength and direction of a price trend. Although originally designed for commodities, CCI is widely used in forex and stock trading to identify overbought and oversold conditions.
CCI is calculated using the following formula:
CCI = (Typical Price – SMA(Typical Price)) / (0.015 × Mean Deviation)
Where:
Traders use CCI levels to identify potential reversal points:
Trading Tip: Works best in ranging markets, where price oscillates between support and resistance.
Divergence between price and CCI can indicate a potential reversal:
CCI can be used to confirm trend strength:
Pairing CCI with a moving average (e.g., 50 EMA) can refine trade signals:
✅ Pros:
❌ Cons:
The Commodity Channel Index (CCI) is a versatile momentum indicator that helps traders spot trend reversals, momentum shifts, and overbought/oversold conditions. When combined with other technical tools, CCI enhances trade accuracy and decision-making.
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