Subtopics on this post:
- What is the Commodity Channel Index?
- The Principle behind the Commodity Channel Index.
- How to Set Up the Commodity Channel Index on Iq Option.
- Using the Commodity Channel Index to trade Forex on Iq Option.
What is the Commodity Channel Index?
Commodity Channel Index is a momentum oscillator used in technical analysis primarily to identify overbought and oversold levels.
The CCI indicator shows these levels by measuring the asset’s variations away from its statistical mean. It measures an asset’s current price against the average price over a given period of time.
Additionally, CCI is used to find reversals and divergences!!
The Oscillator appears as a blue line that oscillates between -100 and +100 at the bottom of the Iq Option charts.
The CCI was introduced by Donald Lambert to identify trends in commodities. However, it has now been adapted into many other financial assets!!
The Principle behind Commodity Channel Index.
As we mentioned, the Commodity Channel Index determines the difference between the current price change and the average price change of an asset.
If the price is above the average level, the CCI reading will be high. On the flip side, if the price is below the average, the CCI reading will be low.
How to Use the CCI Oscillator.
The CCI can be used in two ways;
- As a leading indicator – Traders trace overbought and oversold levels together with bullish and bearish divergences.
- As a supplementing indicator – Prices above +100 may hint to an upcoming uptrend while those below -100 may point to a possible downtrend. This is subject to the other trend markers in use.
How to Set Up the Commodity Channel Index on Iq Option.
Set up the CCI on your Iq Option chart in the following steps;
- Log in to your Iq Option trading account.
- Locate the Tools Tab at the bottom of the interface – Scissors like.
- Hit the Tools Tab.
- Select Indicators from the Options that pop up. A list of Indicators will appear.
- Select Popular then move your cursor to CCI and click to apply.
- A pop up will appear for you to modify the Oscillator parameters – Period, Overbought level, Oversold level, Oscillating line color and width, Overbought line color and width, oversold line color, and width.
- Hit the Apply button once you adjust those parameters.
- A blue line that oscillates between -100 and +100 will appear at the bottom part of the interface below the chart.
CCI is ready for use!!!
Using the Commodity Channel Index to trade Forex on Iq Option.
As we mentioned earlier, traders on Iq Option use the Commodity Channel Index to identify;
- Overbought and Oversold levels.
- Bullish and Bearish Divergences.
Let us now deal with each aspect separately and see how you can trade profitably on the Iq option platform using the Commodity Channel Index.
Trading Overbought and Oversold conditions on Iq Option.
One way to trade on Iq Option using the CCI is to identify Overbought and Oversold levels of the market price.
Observe the blue line of the Commodity Channel oscillating between -100 and +100.
If the blue line crosses the +100 level going up, then that is an Overbought condition. The next question you should ask yourself is how to trade overbought conditions.
If an asset is overbought, then realize that the strength of buyers is about to reduce and sellers are about to take over the market.
Therefore, once you identify an overbought condition using the CCI, relax, and prepare to enter a Sell position!! But wait, not immediately!!
When do you enter a Sell Position in an overbought condition?
Wait for the blue line to reach the peak above the +100 level. Once it now begins to drop and crosses the +100 going down, Sell.
On the flip side, if the blue line crosses the -100 level going down, that is an Oversold condition.
A similar question as the one you asked during the overbought condition should be bothering you. Yes, you have identified an oversold condition, but how do you transform that to profitable trading??
On identifying an oversold condition, the market is telling you that you need to stop what you are doing and begin preparing to enter a Buy Position!!
This is when you will enter the BUY position.
You will allow the blue line to finish its business below the -100 level. Once you spot it crossing the -100 mark going up, that is the time to place a Buy trade!!
It is exactly that easy!!
Trading Bullish and Bearish Divergences on Iq Option.
The second way to use the CCI tool on Iq Option is to determine divergence. Divergences occur when the direction of movement of the CCI is opposite to the direction of movement of the price chart!!
In that case, where the CCI directional momentum does not confirm the price according to the price chart, the trend can be expected to reverse soon. Note that divergences can be misleading during strong trends.
Bullish divergence will occur when the chart prices fall to a new low but the CCI does not fall to a new low. It may actually be moving opposite.
This demonstrates that sellers are losing control of the market and buyers are ready to dominate. Often, a bullish divergence occurs at the end of a downtrend!! If you spot such a divergence, prepare to place a Buy position!!
A bearish divergence, on the other hand, will occur when the prices on the chart rise to a new low while the CCI does not recognize that rise. This is a sign of overpowered buyers and sellers are about to take over. Once you identify such a divergence, you can only prepare to Sell!!
The CCI is a versatile chart analysis tool. We have seen how you can apply and use it to trade profitably on Iq Option.
Apply it to your Iq Option chart today and benefit from the profitable signals it gives!!!
You can use it together with other chart analysis tools for more accurate signals on Iq Option.