CCI (Commodity Channel Index) is a technical indicator that helps traders assess current market conditions and identify possible reversals or trend continuation. It was originally developed to analyze commodity markets, but now it is actively used to work with cryptocurrencies.
How does CCI work?
Overbought and oversold zones:
- A value of +100 and above indicates a possible overbought instrument (a downward pullback is likely).
- A value of -100 and below indicates that the instrument is oversold (upside is possible).
Buy and Sell Signals:
- Buy: When CCI crosses the -100 level from bottom to top.
- Sell: When the CCI crosses the +100 level from top to bottom.
Divergences:
- If the price updates the high and the CCI does not, it is a signal for a possible downward reversal (bearish divergence). If the price reaches a low and the CCI does not confirm it – a reversal up is likely (bullish divergence).
How to use CCI in trading?
- Trend detection:
CCI can show the strength of a trend. Values above +100 indicate a strong uptrend, while values below -100 indicate a downtrend. - Finding entry and exit points:
Use the +100 and -100 levels to signal open trades or take profits when the CCI returns to zero. - In combination with other indicators:
CCI works particularly well when paired with support and resistance levels, as well as RSI, MACD or moving averages. - On different timeframes:
On low timeframes, CCI helps to catch short-term momentum, while on higher timeframes it helps to catch larger trends.
