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Investment analyst Donald Lambert is generally regarded as the developer of the Commodity Channel Index tool in the late 1970. It has been used successfully by many traders and brokers within different financial market including binary options. This investment analysis tool can be used as an indicator for trending condition and can also help traders spot an opportunity that is worth trading based on the identified market trend.
CCI (Commodity Channel index) is a tool that can be deployed to identify trends across a broad range of market. This type of indicator is also known as oscillator because of the fact that it measures that difference in a security asset price from the moving average.
The commodity Channel index tends to be unusually high in situations where an asset price surpasses it average value considerably. The opposite is also true and it will be fairly low in situations where an asset price is way below their average value. The Commodity Channel Index is most useful in spotting assets that look to be in an overbuying or overselling position. The CCI can also be helpful in identifying the valleys and hills in the actual value of an asset and signifying that a trend has come to an end or a potential change is trend direction is imminent.
So how can this tool help identify a trend? The Commodity Channel Index usually concerns itself with the movement of price between the -100 and +100 levels on its plotted chart. An up or down move that is outside this range most often tells traders there is a high amount of weakness or strength that is unusual in a security asset and this is usually followed by a long move of that asset. The Commodity Channel Index shows upward leaning trend when it presents a value that is on the positive side, conversely, it is a downward leaning trend when is present a value on the negative side.
It is, however, important to note that if a trader is in the habit of utilizing a zero line and there is a chance for a crossover, then the end result could be whipsaws in the plotted chart. This is why it is absolutely important when using the Commodity Channel Index for an investor needs to wait for the asset price to go higher than +100 levels and then enter into a long posturing trade or wait for it to go down below the -100 level and then enter into a short term position which would greatly diminish the occurrences of whipsaws.
The Commodity Channel Index is also useful because the number of the timeframes a trader wants to use with the index can ultimately be adjusted to the user’s comfort level. Binary options trading usually has an expiration date and time and often the adjustable timeframe becomes the most important element of the Commodity Channel Index.
Cover Image via Sajid Pervaiz Fazal
