Posted by forex at 8:24 AM
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1. Open your Forex charting software and create a price chart of any currency you wish. Apply the CCI indicator to the chart. You will see a new sub-graph appear below your price chart, containing a single line that fluctuates above and below its center zero line as Forex prices change.
2. Locate the levels on the CCI chart that are 100 and -100. These are equidistant above and below the center zero line. Many traders consider these significant levels in the CCI chart. If your charting software provides a drawing feature, you can highlight these levels during your learning process so they are more obvious.
3. Buy into the Forex market when the CCI crosses up through the 100 level. While this is just one basic interpretation of the CCI, it can help you understand how it reacts to price changes. The concept is that the CCI is recognizing a strong positive trend when it reacts in this way. The trade may be good as long as the CCI remains above 100. Then, close the position if it falls back to 100.
4. Sell short into the Forex market if the CCI crosses down through the -100 level. Selling short is a common strategy in Forex and requires that you sell currency you do not already own. This lets you profit from a decline in Forex prices. The CCI suggests a strong negative trend. When the CCI rises back to the -100 from below, it is time to close out the position.
5. Buy into the Forex market if the CCI rises up through the -100 level from below. This is a similar interpretation of this negative level. It suggests a negative trend may be reversing. Thus, this acts as both a closing signal for short sellers, and a buying signal if you do not currently have any position open.
6. Sell short the Forex market if the CCI falls down through the positive 100 level. This is the inverse of the similar trade idea for the -100 level.
7. Draw a trend line on the CCI chart itself. If you cannot draw a trend line, imagine it on the chart. A trend line is a perfectly straight line that you can connect between all the low points on a CCI fluctuation in the case of an up trend, or all the high points in the case of a down trend. If the CCI moves through this trend line at any time, consider this a warning of an imminent price reversal in the Forex market.