Overbought Oversold Strategy

One of the most popular oscillator indicators is called the Commodity Channel Index. Contrary to what the name may imply, the CCI indicator can be applied to any market, not only to commodities. It measures the present price of a financial instrument against the average price during a certain period. It helps to identify divergences and predict a reversal of a trend. It shows when an asset's price falls into oversold or overbought areas. Let's see how you can use the CCI on the Binomo platform. How to attach the CCI to a chart on Binomo First, log into your account on Binomo. On the left side, you will find the Chart preferences icon. You need to click on it and then choose the Indicators tab. The Commodity Channel Index is on the list. How to add the CCI to the chart on the Binomo platform The parameters of the indicator are set by default to 100 as the margin for the overbought area, -100 for the oversold area and the period is 20. The main settings for the CCI indicator The CCI will be then added to the chart. It is in the form of a white line which moves between the two extremes. The -100 and 100 lines are marked. The indicator, however, can surpass these lines. And when this happens the market is considered to be oversold or overbought. The CCI on the EURUSD 1-minute chart Using the CCI to trade on the Binomo platform There are two approaches to trading with the use of the CCI indicator. One revolves around the oversold and overbought zones. The second one is about divergences. Let's have a closer look at them. Oversold and overbought areas In this method, you should pay attention to the moments when the CCI line falls into the oversold or overbought areas. Whenever the indicator drops below -100, the market is considered to be oversold. It gives the signal that soon the trend will reverse. You should be ready to enter a buy transaction. When the indicator rises above the value of 100, the asset is overbought. You may expect the uptrend to end soon and a downtrend to begin. That is why you should be prepared to open a sell trade. The CCI shows the market direction Divergence In this approach, you should look for the divergencies. Divergence occurs when the price and the indicator are not going in the same direction. It is telling you the trend will most probably reverse soon. Take a look at the example below. In the first marked field, the price of an asset is rising. But when you check the CCI at the exact same time, you will notice it is falling. This is the divergence. The CCI rises above 100 level. You assume a downtrend is coming. After a short fall, it rises again above 100. But this time, it is falling with high intensity. In the second field, there is also a divergence observed, but in the opposite direction. The price is falling while the indicator rises. The CCI drops below -100 line so you expect an uptrend to begin soon. However, after a short rise, it falls back into the oversold zone. It is just to readjust and adopt a strong uptrend. The CCI divergencies The Commodity Channel Index is a very useful tool designed to help you find the best entry points. It is quite powerful and not very complicated. However, I always recommend trying every new indicator, strategy or instrument on the Binomo demo account. It will protect your account from unnecessary loss. Once you have got a hold of the CCI, shift to the real account and to try and make profits. Enjoy the trading!

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