What is the Cci Indicator and Stochastic Oscillator?

Navigating the financial markets demands precision. Explore the power of indicators like Cci and Stochastic Oscillator, unraveling their intricacies for informed decision-making in forex, stock, and commodity trading. 

• Cci Indicator: Developed by Donald Lambert, Cci aids trend identification with a recommended 11-day calculation.
• Stochastic Oscillator: George Lane's creation predicts price movements based on overbought and oversold conditions.
• Overall Strategy: Successful trading integrates technical and fundamental analyses, risk management, and tailored approaches to timeframes.

In technical analysis, many indicators such as cci indicator and stochastic oscillator are used to predict the price movements of investment instruments. Each of these indicators used has different indicator values and properties. It is recommended to use these indicators in order to better predict instant prices when trading in high volume markets such as stock exchange, viop and forex. In this way, investors can analyze the fluctuations in the exchange rate in the best way, reduce the risk of loss and achieve higher profits.

What is the Cci Indicator?

The cci indicator, which is used as an abbreviation of the word Commodity Channel Index, has been developed by expert analyst Donald Lambert and becomes one of the most used indicators in the financial markets. Successful results are obtained by using the Cci indicator in many areas such as stock market indices, stocks, foreign exchange and commodities. In order to better understand what Cci means, 'how to calculate the cci indicator', it is necessary to explain this first.

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How to Calculate the Cci Indicator?

The Cci indicator is calculated based on the averages of data in a past period. This average includes the highest, lowest and closing prices of each day. Analysis can be made according to the value of the obtained result away from the moving average. Since the indicator has a very mobile and sensitive perception system, trend starts can be easily caught. Especially in short-term and horizontally developing markets, it produces more accurate results compared to medium and long-term markets.

Lambert considers it appropriate to apply the value in the indicator for 11 days, acting on the assumption that prices generally repeat in 22-day periods and that this period has increased 11 days and decreased 11 days. When applying the Cci indicator, it is not recommended to use a value outside the range of 5- 25 days. Again, it can present a wrong idea if it is used in markets with high volatility.

Using the Cci Indicator

When the Cci indicator is viewed on the graph, it is seen that there are 2 values as +100 and -100. By indicating these two reference values with a line, price movements between them are monitored. If the prices remain between these two reference values in the normal course, if it goes outside the +100 and -100 values, it is thought that the trend may end and change direction, that is, overbought or oversold signals. The value 0 in the middle of the indicator is accepted as the center.

 How to Interpret Cci

• If the average line rises above the +100 value in the indicator, it is interpreted that the prices have reached the overbought area and that no new purchases are entered from these levels anymore. At these levels, the current buy positions can be closed and profit can be taken.

• If the average line falls below the -100 value in the indicator, it is interpreted that the prices have reached the oversold zone and that no new sales are made at these levels anymore and the prices may rise again at any time. At these levels, profits can be taken by closing the current sales positions.

• Another way of interpreting the third indicator can be made according to the incompatible movements of the indicators and values. If the movement of the cci indicator and the price chart are incompatible, it can be interpreted that the trend may change direction and the prices can make a correction.

Note: The period on the chart is set to 14 days, and you can manually change the duration according to your own trading strategy.

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What is Stochastic Oscillator?

Stochastic Oscillator is one of the most used indicators in investment instruments such as stock markets, viop and forex. The indicator was developed by George Lane and predicts in technical analysis that future prices may be close to previous closing prices. To better understand "what is stochastic", let's look in detail how stochastic is calculated and interpreted on the graph.

How to Calculate the Stochastic Oscillator?

The 20 and 80 levels appearing on the indicator represent the overbought and oversold zones of prices. The prices in these two ranges are displayed as a line above the chart. One of the lines shown is called the % K line and the other is the % D line.

The % K line is shown as a straight line without any cut. The slowed% K curve is used as the main curve on the indicator.

The% D line is represented as a dashed line and is often referred to as the signal line.

* When we add the Stochastic Oscillator to the meta trader 4 platform, the % K opens with a time interval of 5 and a slowdown value of 3, while the interval of % D is selected as 3.

If you want to calculate the % K curve, you can use the formula below.

% K = 100 x (CP - LP) / (HP-LP)

The definition of abbreviations on the formula; (if the last 5 days are selected as a period)

CP: Last day's closing price

LP: The lowest value of prices in the last 5 days

HP: The highest value of the prices in the last 5 days

Slowing down % K curve: The moving average of the% K curve calculated over a period.

% D curve: The moving average of the slowed % K curve over a period.

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How to Interpret the Stochastic Oscillator?

• While interpreting the stochastic oscillator, the lines on the indicator that approach 20 and 80 should be taken into account. The % K and% D curves that move between the value of 20 and 80 can give us an idea of which direction prices may move in the future.

• If a movement above 80 occurs while monitoring in the specified period, it is predicted that the overbought area is approached and may return to sale at any time. It is recommended not to make new purchases at these levels and to close the existing buy positions.

• Again, if there is a movement below the value of 20 in the specified period, it is predicted that the oversold zone is approached and can return to buying at any time. It is recommended not to make new sales at these levels and to close existing sales positions as the trend may reverse.

As in the Cci indicator, in the Stochastic oscillator, the differences in the price and the chart can be a signal. For example; While prices are rising in the real market, if the stochastic indicator shows us a decline, it could mean that there may be an unexpected movement in the opposite direction of the current trend.

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Summary

Although the indicators and indicators that help to predict the future movements of the exchange rates are very useful in technical analysis, unfortunately, they are not sufficient by themselves for success. For this reason, it becomes important to perform fundamental analysis in addition to technical analysis and to apply a specific trading strategy.

While conducting the fundamental analysis, following the socio-economic status of the countries, daily economic calendar and monitoring important data is the best approach for success in financial markets. Again, as the risk profile of each person will be different from the other when viewed individually, investment psychology should also be carefully considered.

When it comes to trading strategy, it is seen as a more correct approach to separate investments into short, medium and long term. For example, stock exchange and viop transactions are generally viewed as medium and long term. However, with the effect of leverage in crypto currencies such as forex and bitcoin, high profits can be obtained even in very small price steps. For this reason, it may be more advantageous to trade in shorter terms in these markets, for example, by looking at daily or even hourly analysis.

In our article, we have covered in detail what cci means, how to use the cci indicator, what is stochastic, how to calculate the stochastic oscillator. There are many indicators such as MACD, Rsi indicator, Bollinger Bands, besides cci and stochastic, which are the most frequently used indicators in Forex, stock exchange and viop markets. You can give an idea to other traders by mentioning the indicators you use most frequently and that you think are successful in the comments section.

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