Reviewed by Jan 29, 2021| Updated on
The index identifies, in technical analysis, whether an asset or a market, is overbought or oversold. It is used by plotting an unsmoothed DCCI with a smoothed line. Crossings of the two lines signify possible “buy” and “sell” signals. The specific entry and exit points are known to be consecutive breaks in the market trendline.
Hence, a dual commodity channel index (DCCI) refers to a tool used to identify when an asset or market is over-bought or over-sold in technical analysis.
The dual commodity channel index refers to a technical and analytical tool, also known as an oscillator. It is an index based on a financial asset’s value and built to oscillate in between two farthest values.
As the index shoots up to the maximum value, it indicates that the asset is overbought and that price decreases as a result. Once the index hits the minimum value, the asset becomes over-sold as the price decreases.
Technical analysis requires the use of historical price data to predict future movements and differs from fundamental analysis.
A dual commodity channel index varies from the common commodity channel index which was developed by Donald Lambert in 1980 to quantify the difference in the value of a commodity from the statistical mean.
The commodity channel index is computed by taking the difference between the current price of a financial asset and its moving average, and later to be divided by the mean absolute deviation of the price.
A dual commodity channel index plots two variations of CCI lines, which gives traders an even more granular understanding of the momentum of a financial asset.
It is the most preferred tool of investors who do technical analysis to make intra-day trades. Technical analysis operates on the assumption that market forces almost instantly incorporate the vast majority of available stock, bond, commodity, or currency information into the price. Therefore, it is not profitable to make investment decisions based on this information.