Fibonacci Traders

Trading Fibonacci, fractals, RSI and CCI

To use any instrument like a professional, one must understand its fundamental purpose. The same is true of the technical indicators such as RSI, Fibonacci and the ** CCI indicator**.

__What Is The Role Of The CCI Indicator?__

The principal function of the **CCI** is to measure the deviation of a financial instrument from a particular moving average.

In effect, the **CCI** period fourteen will be beyond the plus hundred level (+100) when there is, at least, a positive standard deviation two from the moving average fourteen. On the other hand, the **CCI** period fourteen will strike the oversold zone when a negative standard deviation two (-2) from the moving average fourteen is in place. Similarly, the **CCI** period twenty will become overbought or oversold when the deviate from the moving twenty with the equivalent standard variation plus or minus two (at least).

General Rule

If one is using the **CCI** period X, one is effectively estimating the price's deviation from the moving average period X.

Indeed, the **CCI** is overbought when the price strays positive two (2) standard from the moving average period X. Contrary, it will be oversold if there is, at least, negative two (-2) standard deviation from the moving average period X.

__Similarities Between The CCI IndicatorAnd Bollinger Bands.__

Many investigations have revealed that the *CCI indicator* is nearly a proxy or different representation of the price action in the Bollinger Bands. For instance, the **CCI** period twenty is essentially another view of the price action in the Bollinger Bands (20, 2).

Besides, the **CCI** period fourteen is to a certain degree the price-action in the Bollinger Bands (14, 2). In each circumstance, when the **CCI** is above plus hundred (+100) level, the price is also at the upper band, but as the indicator becomes oversold, the price is also tagging the lower band.

View the chart.

Image = "Bidu incorporated stock weekly chart that is illustrating

the positive correlation between the oversold and overbought

CCI indicator period twenty-one and Bollinger Bands (21, 2)"

When the **CCI** crosses above the center line (50), the is also crossing above the middle band and vice versa.

Warning

The association between the **CCI** and the price action in the Bollinger Bands is reliable more than ninety percent of the time except during distortions and divergences.

Key Similarities

The upper band corresponds to the overbought level.

The oversold zone (minus hundred level) compares to the lower band.

The central line resembles the middle band.

The **CCI **matches the price action.

The deviation of the **CCI** to the central line answers to the difference of the price action to the middle band.

Following those considerations, one may interchange the **CCI** oscillator period x with the Bollinger Bands (x, 2). Subsequently, it is irrelevant for traders to plot both the **CCI** x and Bollinger Bands (x, 2) on the same __chart__.

__The Advantage Of Using The CCI InsteadOf The Bollinger Bands__

Though, there are many connections between the **CCI** and the Bollinger Bands, the **CCI** enables traders to identify both the conventional divergences and unfamiliar discrepancies. Hence, it provides leading trading signals which the price-action must authenticate with direct trading signals.

The **CCI** also smooths the price action and reveals the price patterns.

Subsequently, the *Commodity Channel Index *(

(or market corrections).

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