RSI and CCI are some of the best trading indicator. Technical analysts use the two indicators to ascertain market momentum as well as identify ideal entry and exit points.
The RSI indicator is simply an oscillator that oscillates between two extremes of 0 and 100. The indicator stands out as one of the best forex trading instruments on the fact that it provides information on overbought and oversold market conditions.
- The term overbought refers to an instance when an asset’s trading value is above its fair or intrinsic value. Assets that are overbought are generally considered suitable for sale.
- The definition of oversold depends, though, on who you ask.
- Fundamental traders believe that an asset is oversold when its price is lower than its fair or intrinsic value. Therefore, they trade lower than their perceived worth.
- Technical analysts believe oversold assets are those that reach a certain level on a technical indicator, focusing on price and historical data rather than the asset’s value.
Just like the RSI indicator, the CCI indicator can be used to ascertain overbought and oversold market conditions on given security under study.
Whenever the CCI indicator reading is above +100, the same implies a strong uptrend is beginning, signaling overbought conditions. In this case, traders should be wary of entering a long position as price tends to have a tendency of reversing.
RSI and CCI indicators are commonly used in scalping as well as trend trading and news trading, given their ability to identify oversold and overbought market conditions. Similarly, when used together, the indicators help shed more light on ideal price targets for opening and closing trades.
- A trader should only consider entering a long position or buy when the RSI reading is above 50.
- For a buy, a signal to enter long positions will happen when the 20-period CCI indicator crosses the -100 from below. Whenever this happens, then it would be wise to enter long positions.
- A trader should only consider entering a short position or sell when the RSI reading is below 50.
- A signal to enter short positions will happen when the 20-period CCI indicator crosses the +100 from above. a stop-loss can be placed a few pips above the entry point.
- RSI and CCI are some of the best trading instruments given their ability to shed light on overbought and oversold conditions. When used together, the indicators can aid in ascertaining ideal entry and exit points perfect for mitigating losses and optimizing profits.