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Introducing the Commodity Channel Index

If there is a handier trading tool than the Commodity Channel Index I would be hard pressed to identify it. Many day traders have flocked to using this indicator for it’s sheer versatility, if nothing else, and it’s following grows yearly.

The Commodity Channel Index (CCI) was introduced in 1980 by Donald Lambert as a way to chart cyclical turns in commodity prices. I don’t trade commodities, so you are probably wondering why I would take an indicator and plug it into trading something like the financial indexes. I wish I could claim to be the first one to do so, but that is far from the case. Scores of day traders use the CCI to trade a variety of trading systems with excellent success, and I simply plugged the CCI into my system. The fact of the matter is one of functionality, regardless of what the Commodity Channel was designed to do, it works well as a day trading tool. Functionality over form, I suppose.

So what, exactly, is the CCI in relation to day trading?

The formula to calculate the CCI is as follows:

CCI = ( Typical Price – SMATP ) / (.015 X Mean Deviation )

Thankfully, you will not have to calculate the CCI by hand, unless you want to bone up on your mathematic skills, because most day trading charting program have the indicator included in their trading package. Notice that the constant being multiplied (.015) to the Mean Deviation is a fixed number. That is no accident, as Lambert found using.015 kept the majority of price action, specifically, 70-80%, between the +100 and -100 lines. I have actually written several programs where the constant is different than.015 and had some great success. However, the.015 will work just fine for our purposes.

Lets talk some about “overbought” and “oversold” levels in the security you are trading. Conventional knowledge would indicate selling out of an equity when it reaches an overbought level. I tend to disagree with that analysis, as people (especially traders) are not the logical calculating cabal you might expect. You see, I like momentum in trading, and when a security reaches an overbought level, day traders who missed the trade tend to pile into to security hoping to catch whatever upward movement they may have missed. Of course, this only adds to the upward movement, and the security continues along it’s merry way, further up. Time and time again I have watched this phenomena.

Having said that, I define overbought and oversold as the +100 and -100 lines on the CCI. Further, I define market noise as anything between the +100 and -100 lines. Those definitions work pretty well for day trading. I realize that using these assumptions challenges some conventional thinking about the market. But this model works well for my purposes as a scalper. (a day trader who is looking to take small chunks out of a short term trend)

I am trying to avoid trading during periods of market noise, when the market is going through the tedious backing and filling process, and only trade when the market is breaking out or breaking down. The CCI and it’s magical +100 and -100 lines gives me an excellent snapshot of when to trade. By that, I am referring to overbought and oversold conditions.

In the formula above, the other constant is 20, and this indicates the number of time periods the program will use in the averaging process. So the formula, to be clear, is using a 20 period average. I don’t use 20 period averages when trading. I generally set the time period to 16, sometimes as low as 10. I have found that a quicker time period makes me more nimble in entering and exiting trades. You may want to start at 20 time periods, and see if that number is a good fit for your trading style.

I don’t use the CCI as a stand alone indicator. For that matter, I don’t use any indicator as a stand alone. No, I find it important to use several other indicators to confirm buy and sell signals. As a trader, I cannot put my trust in any single indicator.

To summarize, the CCI is an indicator that was developed to chart cyclical changes in the commodities market, and I fiddled with it’s settings and found it effective in trading the financial index markets. The Commodity Channel Index has several constants in the formula, and I have chosen to alter those constants to fit my needs. Finally, I have a set view on the market which is defined by the +100 and -100 lines on the index, and use the index to set my view as to defining the following terms:

1. Market noise
2. Overbought condition
3. Oversold condition

Take some time and play with this indicator. I think you will find it’s versatile and nimble in the markets and worthy of your attention. Just don’t put too much stock in a single indicator, seek out the relationship of the indicator and price action and the synergistic relationship it shares with other confirming indicators.

Introduction For Stock Market Trading

Investing in stock market need the serious education, we will help you to learn how to make decision before ‘in and out’ from market.

Spot trading is a trading form involving the financial market of the world including d o w j o n e s Industrial Average (d j i a), n a s d a q Composite index, hong k o n g Market (hang s e n g index), Japan(nikkei 225), South Korea (k o s p i Index) and Foreign Exchange as reference.

The stock market/stock exchange manages the time – share index counted based on the market recapitulation comprising share blue chip and second line share on the average fluctuation of 100 up to 300 points a day.

Foreign trading is a trade exploiting any change of the exchange rate of two different currencies from the fluctuation on the average of 80 up to 200 points a day, 24 hours in a day, 5 day in a week.

Being supported by sophisticated technology, everyone may keep up with the movement of foreign and index price and may become a participant in the world markets. One of the
forms of index and foreign trading is margin trading where by having relatively small amount of fund, the customer may carry out any transaction in a certain contract of which amount is bigger than the investment fund.

In Index Market and foreign market the investor can determine to take any position such as buying or selling, and can liquidate such position in an anytime as well.

In Stock market Trading provides facilities of online trading where every customer can perform transaction directly by using name and personal password of the user and in addition,
The customer can access the world trading, analyze graphics and get the newest account status.
The internet access facilitates the investor or market doers in transaction at anytime and anywhere from office, home or even while on vacation.

Before performing any transaction, shall make a analysis to determine a type of transaction which will be committed.

There are two kinds of analysis usually used in Stock market Trading, namely :

1. Technical Analysis

It is based on the change of price which will be then clarified in the forms of statistic graphics : Hourly, Daily, Weekly, Moving Averages, R S I, M A C D and other analysis
That all of them can be utilized to predict price movement Stock market Trading

2. Fundamental Analysis

It is based on social-economics and political changes form countries all over the world, especially from economic super power countries, for instance : rates of interest,
Inflation rates, unemployment rates, war, strikes, the government policy that influence economic movement of the countries. The changes occurring in the superior companies
Joining in a index shall become indicators.

A Brief Overview of the Dow Jones Index

In the US, the Dow Jones Index is one of the major indicators of market movements. The other two major market indexes are the NASDAQ and the S&P 500. Collectively, they are known as the Security Market Indicator Series (SMIS). It is a price weighted average index of 30 major companies. The Dow was founded in 1896 by Charles Dow, and at that time, represented the dollar average of twelve stocks. Since that time to present, it now has thirty components and is thus referred to as the Dow 30. In the old days, investors did not buy stocks because the stock market was not held in high regard. Instead, they mainly invested in bonds.

 They did not have the technical indicators or different theories we have today, and they did not have any clear idea about how the market was moving, whether it was up, down or sideways. Because of this, they could not forecast trends. This would have made it harder to profit from stock picks. It is very important to have stock charts, and to be able to perform technical analysis on any stocks to determine where the price may reverse. Without this kind of information, you could only hope the stock would rise because you heard from the company owner that they had a good year. Thanks to the creation of the Dow Jones index, all that changed, and with it came a completely new way of forecasting.

Investors trading stocks on the Dow Jones index will be able to invest in a number of ETFs or exchange traded funds that are available through different asset management companies. Investing in these funds reduces your overall risk, because the fund is not dependent on the performance of one stock. This means that if one stock under performs, the other stocks in the fund will still allow you to make a profit, provided they are performing well.

Before you get involved in trading on the Dow Jones index, you should research the historical movement of the index. Markets move in a cyclical manner and have four phases. By using technical analysis, you can determine where the next trend will end and where the next one will start. Getting into the market that is bearish will not benefit you. Even if you have the best stocks, the market will pull it down. If you are looking to invest, try to buy just as the bulls are stepping in with the prices still low.