Binary options is a good trading environment, but it also involves an equal level of risk. But despite the risk, some traders do not use trading indicators and necessary charts. And this thing results in losing even a simple trade.
If you don’t want to risk your money, you should involve technical indicators in your trading. By using tools, you can make unambiguous predictions and uplift your trading game.
Among the available indicator types, CCI is a common one that can help you earn a considerable amount of profitability. CCI indicator, also known as Commodity Channel Index, is ideally used for speculating the price movement of an asset. The main reason traders like this indicator is that it increases the chances of winning fast-paced environment trades.
If you want to reap the goodness of the CCI indicator, you must know why this indicator is genuinely used? How does it work? And most importantly, what are different CCI indicator trading strategies?
This guide answers all these questions.
What is a CCI indicator?
CCI indicator, commonly known as Commodity Channel Index, is an excellent tool for binary options trading. It helps to understand the nature of the trading market. This indicator comes in handy in the market environment when the asset’s price moves too far and then comes back to its original place.
With the help of CCI indicators, you can create unambiguous speculations to win a highly profitable trade. Mostly, short-term traders use it. Although CCI stands for Commodity Channel Index, it offers accurate results while trading currencies and equities.
After being developed in the 1980s by Donald Lambert, CCI became famous. That’s because it’s an easy-to-understand tool that generates accurate results. Ideally, this indicator oscillates between +100 and -100.
Remember that when the oscillation is below -100, it’s a bearish signal. Whereas above +100, it shows a bullish signal. So, when you watch the oscillation, you can quickly identify a new and profitable trade in the market.
A quick example of CCI indicator
Here’s a quick example that shows how the CCI indicator works.
Do you remember what the price of gold was a couple of centuries ago? We are sure that at some point, the market price of gold would have been one-eighth, quarter, or half of what it’s today. But the main point is, the price of this item has increased over time.
But imagine a situation where the price of gold increased drastically in just a few days. Will an equal number of people be buying it then? Of course, not. After the drastic price increment, the demand will drop. It will further force the market to bring the price of gold back to its original value.
Similarly, if the price of gold dropped overnight, it would result in more demand and less supply. It can further lead to complications because the balance of the market will get disturbed. That means the price will rise back to its original value.
So, this thing shows that an overnight increase in price can create uncertainty in the market. It further leads to decreased demand for that item. It’s always recommended to have a gradual increase.
The point of the CCI indicator is that it helps the traders to understand the nature of the market. And if under any given circumstance, the price of an item moves to an extreme end, whether high or low, the trader’s psychology will bring it back to the normal value.
How does the CCI indicator work?
To help the traders identify in which direction the price of an asset has moved, this Commodity Channel Index works in three ways.
- The first is the strong moving average. It is the statistical price mean.
- The next one is the typical price, which is the average of the last period’s price.
- And the last one is the mean absolute deviation. This factor helps in understanding how far the price of an asset has moved from its mean position.
Most of the time, CCI only uses these three factors for analyzing the trading market’s behavior. This indicator calculates the mean absolute deviation between the current typical price and the moving average. In the end, the generated sum is multiplied by 0.15.
The formula for Commodity Channel Index indicator looks like this:
(Current typical price – simple moving average) / mean absolute deviation. / 0.015
Here, the Typical Price (TP) = (High + Low + Close)/3
In an ideal scenario, the obtained result will be between +100 and – 100. But if the sum is not in this boundary, it indicates oversold or overbought in the market. And if you place a trade in such a situation, you should be prepared for losing your money. That’s because it’s a risky trading environment.
Advantages of using CCI indicator
The given reasons clearly explain why the CCI indicator is an excellent tool for making winning trade strategies.
It shows clear predictions
Binary options traders need to make quick predictions because this volatile market can change its direction at any time. But you cannot use instant assumptions without the help of a tool. That’s why you should rely on CCI.
This excellent trading indicator can speed up the process by showing precise readings. After seeing the market movement, you can place your trade. But if the market is not favorable, you must avoid trading.
It’s great for a short period
As compared, the CCI indicator is used by short-term traders. But do you know why? That’s because short-term traders do not have any fundamental influence. It loosely translates to the market moving in the direction that CCI has predicted. Thus, it creates an excellent environment for winning trades.
It allows short-term predictions
Lastly, one can use this fantastic indicator for making short-term predictions. This indicator creates market predictions on different time scales. These speculations can further be used to the next candlesticks while trading.
Different CCI indicator trading strategy
Here are a few trading strategies that you can use along with Commodity Channel Index to generate better results.
Trading extreme areas with high/low Options
Among all, the best CCI indicator trading strategy is using it with high/low options. Once the indicator enters an extreme area, you can use high/low options. But it’s essential to find the right time to make a profitable investment.
Here are three-time frames that are most profitable.
- Trade when the CCI indicator enters an extreme area.
- You can even trade when the indicator is about to turn after entering an extreme area.
- And lastly, trade when the CCI indicator leaves the extreme area.
If you want to trade by following the third time frame, i.e., when the CCI indicator is leaving the extreme area, you must select a shorter expiry time to win the trade. That’s because you are trading in a developing area.
Similarly, if you want to place a trade by following the first trading scenario, you should wait in the trading market a little more. That’s because you are trading early, and by waiting, you can find a better trading opportunity.
Lastly, the second situation requires you to select an appropriate expiry time. It is because, in this situation, you are neither entering the market early or late.
Combining CCI with candlestick and other Option type
The next strategy to use the CCI indicator is by combining it with candlestick and other option types. This way, you can predict the market and can make accurate predictions. These predictions can further be used for making better trades.
Ideally, traders choose a candlestick that has a bigger formation, but you can even use a candlestick with the formation of two or three candles.
In case you have selected a smaller formation, you should trade carefully as a small candle does not indicate strong market momentum. However, if you have selected a larger candle formation, you can easily predict strong market movement. That’s because more candles create an ideal environment for trading.
CCI dual time frame trading strategy
For using this trading strategy, you need high time frames. With the help of high time frames, you can quickly predict high profitability and low-risk trades.
Trading CCI divergence
To successfully use this strategy, you need to do a quick survey to identify the trend. If the CCI indicator shows the same market trend, you can freely use high/low options. But if there is a divergence, you need to select an expiry time.
This strategy will only work if you have carefully analyzed the CCI indicator while looking for a trend.
You cannot execute successful binary options trading without using a technical indicator. And nothing is better than the CCI indicator as this excellent tool can accurately predict the market movement.
But the thing is just like any other indicator; this one also has certain limitations. First things first, it offers a poor trading strategy. This can lead to losing trade.
So, it’s essential to consider the limitations of this indicator and then create a successful trading strategy accordingly. This way, you can win a huge payout.