In the forex faq for this week, we are going to discuss a question from one of our fellow traders on CCI indicator.
Below is the question:
How to use CCI while entering trade.
In fact, I have written a post some time back showing you how to make use of CCI indicator in your trading. In the post, I also recorded a video at the bottom for those of you who prefers to watch a video tutorial.
However I will take this opportunity to remind you about the usage of this CCI indicator in your trading.
1) Entry and Exit Signals
When you are using the CCI indicator to identify your entry and exit, you will have to take note of the +100 and -100 level.
When you are in a LONG trade and you see the CCI indicator cutting above the +100 level, you will have to be alert. Once the CCI moves back to the +100 level, it will most likely start moving down and therefore you should exit your position.
Similarly, when you are in a SHORT trade. You will have to take note of your CCI indicator hitting the -100 level. Once it starts to move back up, it is about time you exit your position.
2) Reversal Identifier
The CCI indicator can also be a good reversal identifier and this can be done with 3 different methods.
CCI trend line break is one way you can tell that the price is going to retrace or even reverse. When you see the price breaking the CCI trend line, you should be alert that the price is going to move in the direction of the breakout.
Besides trend line break, you can also make use of CCI divergence to tell whether the price going to reverse or not. When you see the formation of a positive CCI divergence, it is a sign that the price is going to move up.
When you see the formation of a negative divergence, it is a sign that the price is going to move down.