Crypto Trading: Learn How to Use the CCI Indicator
Technical analyst Donald Lambert initially introduced the Commodity Channel Index, mostly known as the CCI Indicator, back in 1980. After he finished developing it, he published it in a popular magazine at that time, Commodities, which now goes for the name Futures. Lambert’s primary purpose was identifying the cyclical trends in the price history of assets. Unlike its name suggests, the CCI Indicator applies to any market, not just commodities. As such, it can be a powerful tool even for the highly volatile crypto trading platform.
For those of you out there who are entirely new to this field, here is a brief intro to how cryptocurrency works. The first cryptocurrency was Bitcoin, the idea of ?? a mysterious online entrepreneur, Satoshi Nakamoto, launched in 2009 in response to the financial crisis that exploded in the previous year. Bitcoin was the first decentralized, open-source, crypto-secure, transparent, immutable cryptocurrency, accessible to anyone globally. These features are now shared by many new alternative currencies, with minor differences and improvements. These centralized intermediaries spend massive amounts each year to improve their security and protect user data.
However, they are still vulnerable to outside attacks and especially internal attacks. The economic aspect behind cryptocurrency trading is as fascinating as its technical side. Bitcoin and other similar currencies are based on certain principles of classical economics. They can be used as virtual global currencies. First, much like in the case of gold, there is a finite number of Bitcoins, and the rarity of the coins makes them more valuable to people. Second, most cryptocurrencies are deflationary. It means they avoid natural inflation through various methods. Finally, yet importantly, the incredibly high volatility of crypto-currencies is only a temporary phenomenon until regulations for cryptocurrency exchange rates emerge.
Now that we’ve covered the basics let’s see what the CCI Indicator can do for cryptocurrency exchanges.
The CCI Formula
The indicator will always be based on momentum, thus falling under an oscillatory classification regular one. To learn how to use it for daily crypto trading best, first, you need to understand its structure. Much like any other indicator, it is based on a formula that will help you calculate the value. The method is calculated by dividing the result of the Typical Price minus Simple Moving Average with the outcome of multiplying the Mean Deviation by 0.015. What the CCI does is compare the current price to the average rate from a set period. Just like many other well-known indicators, the default CCI period is of 14 periods. A period is represented by the number of price bars included by the indicator in its calculation. In layman’s terms, the slower you set the indicator, the higher the resulted sensitivity. Having such an indicator for, let us say, slots online win real money gaming would be phenomenal. As for the cryptocurrency trading platform, long-term players will choose daily or weekly charts for a higher period, while daily players will go for the lower period, and shorter timeframes.
The CCI Indicator for Crypto Trading
The CCI strategy is pretty basic and common to all types of trading, not just e-coins in particular. CCI will track any movement higher than +100, generating a buy signal. Subsequently, changes below -100 will generate sell signals or short trade ones. Most investors out there will take action on buy signals, and when sell signals occur, they will exit. As soon as new buy signals arise, they will re-invest. It is a basic strategy, and when it comes to cryptocurrency trading, you could implement it in any automated crypto trading bot.
However, this is just a basic strategy, as the CCI indicator can be used several timeframes. You will use long-term charts in order to establish the most dominant trend. At the same time, you can use a short-term one to determine pullbacks, and entry points for that trend. Active or even daily traders usually use strategies involving multiple timeframes. A less conventional policy that users might recur to is that of initiating a counter-trending trade, based on the current short-term trends. Crypto traders will mostly use the indicator to determine trend direction. Many of them will use it on lower periods. As a result, they can predict changes of direction that occur when the best crypto trading platform goes through oversold or overbought stages.
The first important thing to remember, after understanding the CCI Indicator, is that you can use it on any timeframe, across any market. Traders will mostly use the long-term strategy to determine the dominant trend, and the short-term one, to identify pullbacks and trigger trade signals. However, the plan is not failsafe, so you should always adjust strategy criteria and indicator periods to improve your crypto trading performance.
Investing in, or trading cryptocurrencies is a relatively new way to make a lot of extra cash. It has been for quite some time now, but now many traders new about it. You acknowledge this fact, and if you have not already jumped on the cryptocurrency trading trend, there is still time. If you are only thinking about it, but not wholly decided, you should know that the final decision is entirely up to you. But keep in mind that the Earth will keep on spinning, even if you standstill. Cryptocurrency exchanges are here to stay, and they will be here in the end. The info and strategies presented in this article are only meant to bring you up to speed and give you the minimum necessary knowledge to start investing, or start crypto trading the smart way.
Thomas Glare has a massive interest in cryptocurrency trading. He runs a successful blog, where he educates young traders to survive the financial markets.