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Problems that arise if only using the CCI indicator
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Problems that arise if only using the CCI indicator

If you trade only on the CCI without a combination of other indicators and price action analysis, a signal error or false condition will often occur. This is because the CCI includes a lagging indicator, or an indicator that is always late in responding to price movements. The CCI will give a signal after the closing of the last price, or the candlestick in the measurement period has been formed. Here's an example:

Trading with Overbought and Oversold

(1): wrong buy signal despite false entry when CCI is oversold
(2): correct buy signal
(3): wrong sell signal (false sell) despite entry when overbought CCI
(4): wrong sell signal. The price continues to move up even though CCI has been overbought
(5): correct sell signal
(6): correct buy signal

To avoid signal errors, traders combine CCI with price action analysis, moving average indicators (usually exponential moving average or EMA) and resistance levels and support.

CCI Combination With 2 EMA Indicators and Price Action Analysis

Moving averages are used as indicators of trend direction because the CCI does not indicate the direction of the trend but provides information on trend strength.

Trading with Overbought and Oversold
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With 2 EMA indicators, it can be seen when there is an EMA cross over, where a smaller period EMA (9 EMA) cuts a larger period EMA (EMA 18) from the top, then the price movement will be downtrend.

For sell entry, we wait until the CCI is in the overbought area, and confirmed by the price action formed. In the example above the price action that is formed is a doji and pin bar.
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Conversely, when the EMA 9 cuts EMA 18 from the bottom, then the price movement will be an uptrend, and for the entry buy we wait until the CCI is in the oversold area.
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