The cryptocurrency market is one of the complex financial markets. If you read a little about this space and the projects in it, you will understand this. But this complexity is not an obstacle for the activity of people interested in this field. Because there are various tools and projects in this market that work to help traders and analysts in this field. CCI indicator or commodity channel indicator is one of these analysis tools.
CCI indicator as a Oscilloscope indicator It works and is used in different financial markets. This indicator helps to identify buy or sell levels and receive buy and sell signals. It can also help in distinguishing positive or negative divergences. Commodity channel index based on Accelerate the process It is calculated and its movement is also according to the strength of the trend of a digital asset in the market. In the rest of this article, we will teach the CCI indicator and its complete introduction.
Introduction of the CCI indicator
The CCI indicator is among the indicators that are used to measure and evaluate the strength of trends in a market. This indicator The power of trends examines and shows the extent of its continuity to the analysts. For this reason, this indicator can be a good indicator for determining the right time to buy and sell an asset.
The CCI indicator was first introduced in 1980 by Donald Lambert. Donald Lambert worked in the commodity exchange. That’s why the name of this indicator Commodity Channel Indicator put. Translation of this phrase in Persian language Commodity channel index Is. Of course, the use of this tool is not limited to the stock market. The CCI indicator is one of those indicators that are known as oscillators and are used in various financial markets.
Each of the indicators that exist in the crypto world is responsible for investigating a specific issue. For example, the RSI indicator, as a lagging indicator, examines the real value of an asset relative to its current trading price. This indicator is very similar to the CCI indicator. But each of them has its own strategy for analyzing an asset. The Commodity Price Channel indicator now compares a cryptocurrency to the average price of that asset over a predetermined time period.
The use of the CCI indicator and the data it provides
Crypto market traders and analysts use the CCI indicator to price trend Define a digital asset. Using this tool, they can find overbought and oversold areas of that asset and identify possible weaknesses in the trend. If you are confused about the concept of overbought, it is good to know that this term is used for times when the value of an asset is higher than its actual price. This situation is considered as a selling opportunity for traders in technical analysis. There is also the opposite concept of oversold. Oversold means that the value of an asset is lower than its actual price and tempts traders to buy that cryptocurrency.
The CCI indicator is based on Momentum Or Impulse trends Runs. Using this tool, you can identify the momentum and strength of the trends. In other words, it can be considered as a tool to detect the trend. For example, imagine a situation where a digital currency is in an upward trend. Using the CCI indicator, you can recognize the speed of changes and the strength of the trend. If the trend strength of that asset is limited, your entry into the market of that cryptocurrency may be too risky.
In general, the uses of the CCI indicator are summarized in these few cases:
- Detection of oversaturation range
- Identifying signals to buy or sell an asset
- Separation of negative and positive divergences
- Trend change (trend line break in commodity channel indicator)
Detect buy or sell signals
You probably know that the commodity channel indicator is an oscillator, moving between two numbers at the upper and lower limits to provide traders with a certain measure and measure. This indicator does not have a specific fluctuation range. But generally, the index fluctuates between two numbers –100 and +100 is formed It is natural that if the time periods in the calculation of this indicator are reduced, the volatility of the index will increase. In this case, there is a possibility that it will leave this range. These time periods usually vary between 20 days, 30 days or 40 days.
To recognize a buy or sell signal in the CCI indicator, you need to look at its numbers. When the index to Number – 100moves, the price of that asset is also decreasing and will probably go down. Whatever this number is -100 The closer it is, the stronger the trend. In such a situation, traders from this indicator sell signal they receive.
Now, on the other hand, when the index is towards the number 100+is increasing, you should realize that the asset you are looking for will have an upward trend in the not too distant future. Whatever this number is 100+ The closer it is, the stronger the trend will be. Traders by observing this mode in the CCI indicator buy signal will receive
Separation of divergence
Concepts such as divergence, support and resistance levels, and such things are among the concepts that are examined in the technical analysis of a digital currency. When the price of a digital asset in the market is increasing or decreasing, but the CCI indicator is in the opposite state, it is a witness Divergence we will be
Divergences into two categories Normal divergence and hidden divergence are divided, each of which is divided into two categories, positive and negative. Normal divergences act as reversal warnings to warn traders to wait for a reversal in the market trend. A hidden divergence also forms during a trend and lets traders know that the current market trend will continue.
How to calculate the commodity channel index indicator
CCI indicator calculation is done automatically in all trading software. But in order to get a deeper familiarity with this analytical tool, it is good to be aware of its calculation formula. This indicator is calculated based on this formula:
The value of the commodity channel index indicator = (Price – MA) / (0.015 × D)
In the formula you saw, each of the used parameters has a specific meaning:
- Price or the price of assets
- MA or the moving average of the asset
- D, which is equal to the standard deviation
Price which is used in this formula, it generally shows the average of the highest (High), the last (Close) and the lowest (Low) price. M.A It is also a moving average line. This line is drawn based on the price of the asset in a certain period of time. standard deviation (Standard Deviation) is also a moving average. But based on the simple moving average difference, it is drawn from the price of that asset.
How to set the CCI indicator
CCI indicator settings are similar in most trading platforms. Setting this indicator on different platforms has two general methods. In the first method, you must first enter the main menu of the trading software you want, and then the option Indicators Choose. After that, enter the section Oscillators Dill and options Commodity Channel Index Choose. But in the second method, the option should be first Indicators List Find it in the top bar. Then enter the section Oscillators Turn on the option Commodity Channel Index click.
Do not forget that CCI indicator calculations are done automatically in trading software. Therefore, the only parameter that you will be able to change in the settings section of this indicator is period Is. Of course, after changing it, all other parameters will also change automatically. It is also interesting to know that the sharpness of the indicator image will also change according to the time period.
How the CCI indicator helps analysts and investors
When it comes to using the CCI indicator and helping analysts, you should remember the adage of a silent hand. Because this indicator is more interested in teamwork. So never forget that the CCI indicator alone cannot be enough to detect buying and selling positions. Rather, by being placed next to other indicators, it can produce acceptable results for analysts and traders.
In the previous parts, we talked about receiving buy and sell signals, identifying the range of oversold or oversold, and distinguishing divergence. All of these, also known as the main uses of the CCI indicator, can help traders make more accurate and profitable trades. Among the strategies that exist for using this indicator include the following:
- Short term CCI + MA strategy
- CCI, MACD, Parabolic SAR integrated strategy
In addition to these, analysts can use the CCI indicator intrinsic value Estimate a digital asset at its buying and selling price in the market. Using this indicator, you can understand when a digital currency is in overbought or oversold condition. In the sense that its value in the market is more or less than its real value.
Crypto market analysts can combine the CCI indicator with other analytical tools such as the trend line to get more reliable results. The intersection of the trend line and the indicator CCI It is where the trend of an asset changes from bullish to bearish and vice versa. Putting this information together can provide a good forecast for the trend of an asset.
Using the CCI indicator
Analysts who are active in the cryptocurrency market should use different analytical tools that exist in this space according to their knowledge and creativity. This can solve some of the complexities and unpredictability of the cryptocurrency market. The CCI indicator is one of these widely used analysis tools used in the technical analysis of a digital currency.
The CCI indicator measures the ratio of the current price level of a digital asset to the average price level of that asset in a given period of time. Do not forget that all analysis tools have their own weaknesses. You should use this indicator along with other analytical tools to cover these weaknesses.
When examining a CCI indicator obtained for a cryptocurrency, pay attention to its value. If prices are higher than average, this amount is relatively high. By analyzing this indicator, you can identify overbought or oversold ranges. In this case, you can enter your currency transactions with more mastery and confidence. Once you have analyzed and checked your desired digital currency using the CCI indicator and other technical analysis tools, you can make your currency transactions through a reputable exchange.
Have you ever used the commodity channel indicator? In your opinion, what is the best indicator to combine with this indicator?
Written by CCI indicator training; How to work with Commodity Channel Index indicator first time on Wallex blog. appeared.
