It cannot be denied that the Commodity Channel Index Indicator is one of the most reliable oscillators. Indeed, even though it was developed roughly three decades ago, the aforementioned forex trading aid is still considered by many as among the most impressive sources of currency trend predictions. Those who are merely beginning to discover the various facets of such an oscillator though, would surely have one question in mind: what are the most important terms to know when attempting get a practical grasp of the Commodity Channel Index? Simply put, boosting one’s forex trading vocabulary is as easy as reading on.
When looking at graphs and discussions that make use of data gathered from the Commodity Channel Index Indicator, one would definitely notice that the terms “up-trend and down-trend” are frequently utilized. The aforesaid words pertain to two distinct types of movement in relation to the price of currency pairs. Specifically, the word “up-trend” is used to describe a noticeable increase in value regardless of minor swings. As one would probably expect, a “down-trend” is the exact opposite of an “up-trend” as it essentially indicates a movement from the upper portions of a graph to its lower regions.
Aside from knowing the meaning of up-trends and down-trends, those who would like to learn more about the Commodity Channel Index Indicator should also comprehend the following terms: overbought and oversold. Simply put, experienced forex traders consider a currency pair as overbought when it manages to surpass the upper limit of the normal range, which is usually the +100 mark. On the other hand, if a particular currency pair is referred to as oversold, then it is currently moving towards a point that is even lower than the -100 mark. Both overbought and oversold states are often deemed as signs of potential trend changes.
Most forex trading experts would also agree that in order to understand the basics of the Commodity Channel Index Indicator, one would have to gather knowledge about the two distinct kinds of divergences: bullish and bearish. A bullish divergence pertains to cases wherein a currency pair’s price suddenly moves towards a new low despite previously showing signs of increase. Alternatively, bearish divergence occurs when a trend seems to be transitioning to a lower point and it suddenly manages to establish a new high. With these in mind, it becomes clear why experienced traders associate divergences with buying and selling opportunities.
As discussed, beginners in forex trading who wish to learn how to utilize the Commodity Channel Index should never forget about several important terms. To reiterate, such people should always keep in mind that up-trends and down-trends refer to movements in a given graph. As also mentioned, “overbought and oversold” are terms used to describe instances when currency prices manage to pass through the limits of the normal range. Of course, bullish and bearish divergences pertain to cases in which the expected trends did not emerge. All in all, gaining mastery over the Commodity Channel Index Indicator requires sufficient vocabulary.