The Analysis tool the Commodity Channel Index was widely credited with being developed by investment analyst Donald Lambert in the late 1970’s. It has been used successfully by manybrokers and traders including those that use binary options in their trading. This investment analysis tool is a good indicator of trending conditions and helps an investor to spot a trade that is worth getting into based on the identified trending market.
The Commodity Channel Index (CCI) is a tool that can be used in identifying trends across a broad spectrum of markets. It is the type of indicator that is known as an oscillator because it measures the difference ina security asset sprice from the moving average.
The CCI tends to be abnormally high in situations where an assets price exceeds its average value significantly. The opposite is true also and it will be fairly low in a situation where an assets price is far below their average value. The CCI is most useful in helping a trader to spot assets that look to be in an overselling or overbuying position.
The Commodity Channel Index can also help a trader identify the hills and valleys in the actual value of an asset and also show that a trend has come to an end or there is about to be a possible change in atrend direction.
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How can it help identify a new trend? The CCI usually concerns itself with movement between the -100 and +100 levels on its plotted chart. A move thatis outside the levels of this range either up or down, most often tells the trader there is a high amount of strength or high amount of weaknessthat is unusual in a securityasset and this is often followed by a long move of that particular asset. The CCI shows bullish leaning trend when it displays a value that is to the positive side, and conversely, it has a bearish leaning trend when it displays a value on the negative side.
One must be sure to note, if an investoris in the habit of using a zero line and there is the potential for crossovers, then the end result could be whipsaws in the chart. This is why when using the CCI index a trader needs to wait for the asset to go higher than the +100 level and then enter into long posturing or wait for it to go down below the -100 level and then position oneself for the short term, so the occurrence of whipsaws then greatly diminishes.
The CCI is also useful because the number of time periods a trader wants to use with the index can be adjusted to the users comfort level. Binary options trading always has to have an expiration date and often the adjustable time frame becomes the key element of the CCI.
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