CCI (Commodity Channel Index) indicator is widely used in order predict price reversals. It quantifies the relationship between the asset's price, a moving average (MA) of the asset's price, and normal deviations from that average.
How to interpret:
- Overbought/oversold conditions. In a normal case CCI is fluctuating in the ±100 range. Rise above +100 means the pair is overbought and signals a downward correction. Decline below -100 means the pair is oversold and signals an upward correction.
- Divergence/Convergence. Divergence occurs when price forms a higher high, but CCI forms a lower high. It can be confirmed with a CCI break below zero or a support break on the price chart. Conversely, convergence occurs when the price forms a lower low, but CCI forms a higher low. It can be confirmed with a CCI break above zero or a resistance break on the price chart.
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