As is known, many technical analysis indicators in forex trading function to determine price reversals including CCI Indicator in forex. For traders, especially beginners, it is important to know about this indicator. 

The reason is none other than the function of the indicator. At the beginning of its appearance, the CCI indicator was used for commodity price analysis.

But along with its development, now CCI has become one of the popular indicators. You can use it to analyze forex or currency movements and stock indexes.

In its use, CCI Indicator in forex is a kind of oscillator that was originally to measure the level of price saturation, be it overbought or oversold. But in practice, this indicator can also be used to show the direction of the trend.

Get to know the CCI Indicator in Forex

It’s a technical analysis indicator developed and used to identify cyclical trends in an instrument. This indicator was first introduced by Donald Lambert in his book entitled "Commodities Channel Index: Tools for Trading Cyclical Trends" in 1980.

With this indicator, traders in the best forex broker can trade at the right moment with optimal results. As an important note, momentum alias timing is one of the important things in trading. The Commodity Channel Index Has 3 Main Components, namely:

1. CCI signal line: when the Commodity Channel Index line is directed upwards, this indicates that the market price is rising. Meanwhile, if the line is pointing downwards, this indicates that the market price is falling.

2. Overbought area: defined as overbought or the price is too high so that it is expected to decline soon. At CCI, the overbought area is above the 100 level and is confirmed as a sell signal.

3. Oversold area: defined as oversold and indicates that the price is low enough. It can be predicted that the price may rise because the oversold area is at the -100 level and is confirmed as a buy signal.

Commodity Channel Index Formula in Forex Trading

You can calculate the CCI value manually by using the following formula:

CCI = (TP-SMA(TP,14)) / (0.015 x Mean Deviation)

TP = (High+Low+Close) / 3

Information:

1. TP: True Price (this value is calculated from the average High, Low, and Close)

2. Simple Moving Average (SMA): the average TP value of the last 14 candles

3. The number 0.015 is a constant used for scaling. With a CCI value that will be in a position around -100 to 100.

4. Mean Deviation: average of SMA TP scores

However, if you find it difficult to do calculations manually, the Metatrader 4 platform, in particular, gives you the convenience of calculating the CCI value, which is simply: Insert > Indicator > Oscillator > Community Channel Index.

Additional Functions of the Community Channel Index Indicator in Forex Trading

As explained in the point above, the CCI Indicator in forex can be used to get information about oversold and overbought.

However, in practice this indicator can also be used to detect divergences followed by price corrections. This divergence is divided into two, namely:

1. Bearish Divergence: occurs when the price rises to form a new high level, but CCI falls and forms a high level at a lower position.

2. Bullish Divergence: occurs when the price falls to form a new low, but CCI moves up and forms a low on a higher position.

However, like other indicators in forex trading, the Community Channel Index indicator still needs to be combined with other technical analysis indicators to achieve better results.

To be able to learn it in more detail, you can join Didimax forex broker to get free forex education facilities. Armed with extensive knowledge about forex, then you will master trading.

If you study forex well, then you can become a professional trader. Therefore, it would be better if you know about the CCI Indicator in forex to support your trading.