Commodity Channel Index (CCI) is an indicator that can assist the traders in their speculating decisions whether to buy or sell a financial instrument, either forex, commodity, CFDs, and much more.
The ability to interpret this indicator right is the key to trading consistency thus leading to long-term success.
Usually, the traders foresee the markets using a combination of indicators, such as the CCI, the Stochastic Oscillator, Zig-Zag, Fibonacci, Relative Strength Index (RSI) and other known tools.
The key is to be able to use the indicators in such a way that will assist you to have a wider, clearer, and better idea of the future price movements.
There are cases, though, where the traders use so many indicators that at the end of the day it is not possible to arrive at the conclusion of whether to buy or sell.
Commodity Channel Index, the tool for breakouts
The ”perfect” scenario is to have two indicators where each other will confirm a valid signal. This combination leads to simplicity in reading patterns, and speed when it comes to execution.
The Commodity Channel Index (CCI) indicator is one that can indeed help the traders to identify the so-called ”break-out” levels, and not the bullish or the bearish retracements as in the case of the Stochastic Oscillator or other indicators.
The CCI with the default settings 14 is very simple to use. This indicator has two levels, the 100, and the -100.
When the CCI’s signal line breaks above the 100 level, this is an indication that the financial instrument could break upwards, thus indicating a buy order.
On the other hand, a break below the -100 zone indicates that a sell signal has greater chances of taking place.