Binary Options Trading with CCI Indicator
The Commodity Channel Index (CCI) was developed by Donald Lambert, an investment analyst, in the late 1970’s. Since then it has been successfully used by lots of brokers and traders with those trading binary options among them. This investment analysis tool is considered to be a good indicator of market trends and greatly helps an investor to find a trade to be worth getting into on the basis of the identified market trend.
CCI is the tool possible to use in order to identify trends across a broad range of markets. Such type of indicators is known as an oscillator as it quantifies the difference of a security asset price from its moving average.
The Commodity Channel Index has a tendency to be abnormally high when an asset price significantly exceeds its average value and fairly low against the backdrop of an asset price to be far below its average value. This investment tool is very useful for a trader when s/he wants to spot assets which seem to be oversold or overbought.
The CCI is also helpful for a trader when s/he tries to identify the valleys and hills in the actual asset value. It also let know that a trend has come to its end or is about to change its direction.
How to use the CCI when identifying a new trend? This usually characterized by movements between levels from -100 and +100 on its plotted chart. If there are any moves outside the range levels either up or down, an asset can be supposed to have a rarely high amount of strength or weakness which can often be followed by a long move of this certain asset. The index shows bullish leaning trend if its value is to the positive side, and a bearish one when its value is on the negative side.
It should be noted that in the case when an investor has a habit to use a zero line and the potential for crossovers exists, the end result can be whipsaws in the chart. And this is the reason why a trader using the CCI index needs to expect the asset to break through +100 level and then long posture for long or wait until it falls below -100 level and then position itself there for the short term In this case the possibility of whipsaw occurrence greatly diminishes.
This index is also useful as the number of time spans a trader wishes to use with it is adjustable to the user’s comfort level. As binary option trading must have an expiration date, the adjustable time frame becomes the core element for the CCI.