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CCI is one of the most important indicators for trading options. If you know how to use it, you can only trade with it and do not turn to anything else. Below you can see how it works.
CCI is a classic oscillator displaying the index of a commodity channel. This tool was invented in the eighties of the last century as a mean of determining price reverse points.
The developer of the program is the financial expert D. Lambert.
Initially, the indicator was intended to be used for commodity markets, but eventually its advantages were also appreciated in other market segments. Nowadays, traders actively use CCI in both traditional trading and binary options trading. Today we will concentrate on the latter one.
Description of CCI principles for binary options
It is widely known, that financial markets are distinguished with strong trends, which tend to appear and to fade over time (the flat state is reached) or to radically change their vector. Classical trend trading means opening positions in the direction of price movement. The earlier you can open the deal, the greater profit you can get.
Unfortunately, modern tools of technical analysis do not guarantee 100% forecast accuracy. Each trend can finish completely unexpectedly, thereby crushing all plans. In order to suit such situations, special programs are created, and with their help traders can calculate trend reverse points. The CCI oscillator is one of those tools.
On the chart of this indicator, we can see a curve that moves close to the zero line. Most of the trading time (up to 75%) she stays in the channel, limited by levels from -100 to +100. The main parameter when setting up the program is the number of billing periods.
Lambert in particular recommends to set up a number equal to one third of the market cycle, that is, the distance between two extremes. E.g., if we consider a month, 10 days are set, if we consider 3 weeks, 7 days are set, etc.
An increase in the proportion indicated by the author will lead to a decrease in volatility and to a reduction in the number of trading signals. If the indicator decreases, the number of messages will increase, but the percentage of false messages will become higher, too. Experienced traders can work with customization of this process, if this complies with their strategy. Beginners should better use the standard setup settings.
Example CCI Transaction
Today I saw this signal in currency pair USD/CAD:
The indicator line dropped to the very bottom and, as one can see, it does not stay here for a long time, which means that the price is about to go up. Without thinking for a long time, I go to this page, select USD / CAD, set up s 15 min. time interval (thought, I could have put less time interval) and buy an option with a subject to a price increase:
If by time the option expires, the rate rises by at least 1 point, I will already receive profit of 74%. The indicator was right:
The USD / CAD rate rose higher than I expected, a simple and free indicator signal brought me $ 44.4 of net profit in 15 minutes.
Binary Options Strategies with CCI Indicator
In this review, we will consider CCI as a special tool for technical analysis. However, before proceeding with the description of signals and methods of opening deals, it is worth mentioning that when the program is combined with other additional tools, the results can improve significantly. In particular, there are good reviews regarding the combinations with Stochastic, MACD oscillators and / or Bollinger Bands, Alligator trend indicators.
The principle, which is used in CCI, is also used in a number of effective indicators. Among them, for example, can be mentioned such popular tool as Woodies. Oscillator properties make it possible to use it as as a good tool for many trading strategies. This is quite natural thing, the ability to generate prediction signals is very useful for trading.
CCI Trading Signals and Binary Options
By using the oscillator, trader can receive the following information:
- Getting in or out of oversold / overbought zones.
The overbought zone starts at +100 level. The intersection of the 100 mark means that the market now experiences uprising trend. The oversold zone starts from -100 level. As soon as the curve falls below this point, a steady downward trend is observed.
Comment to the picture:
The upper part of the green line is the overbought zone
The bottom part of the red line is the oversold zone
As it was already mentioned, the curve mainly varies from -100 to +100. In oversold and overbought zones, it is only 25-30% of all time. However, exactly during this period a greater number of options deals is performed.
A divergence signal occurs when the CCI movement does not comply with the behavior of the price chart. If the indicator curve starts to move down, and the price continues to rise (the discrepancy is confirmed at the next extreme), the probability is rather high that the trend will soon become a downtrend.
And, on the contrary, if CCI started to grow with a downward trend, and the price is still falling, we can expect its further growth. Divergence is considered to be a strong indicator, recommended not to be ignored. Now let’s look at these signals regarding the binary options trading.
Basically, everything has been said about divergence right above. We should only add that as soon as a discrepancy is found between the price and the CCI curve with an upward trend in the indicator, an option is bought with a growth forecast. Such a discrepancy in the graphs indicates that the price is moving up by inertia and there is a high probability of its reversal in the near future.
Likewise, CCI has a divergence in a downtrend. Most likely, the growth of the asset price will soon stop and it will begin to fall, so it makes sense to think about purchasing an option with the condition of depreciation.
The most common problem that CCI oscillator users face is the lack of such tool on general trading platforms related to binary options. But you can always find and apply this indicator on a live chart.
Just like me, you can open a CCI deal with a FiNMAX broker. He is quite reliable, I have been working with him for a long time and have repeatedly noticed when comparing that he gives a slightly higher percentage of profit on assets.
When working with this indicator, you should always pay attention to the cycle structure of the basic asset market. If this parameter is not defined clearly enough, trading becomes much more complicated. In addition, you will need extra configurations, which can be performed only by experienced traders.
Beginners in trading should better focus on trading indices and stocks – here the accuracy of CCI signals almost always meets the standards of the oscillator. Those who like buying binary options for currency pairs should be prepared in advance for certain difficulties. The Forex market cannot boast with a strong cycle nature.
The oscillator itself is a fairly powerful analysis tool, but experts recommend using it in combination with other programs. Additional verification of CCI signals with a trend indicator and / or oscillator will significantly increase the effectiveness.