# Two most efficient indicators that can help you to make profitable trades.

**Two most efficient indicators that can help you to make profitable trades.**

**1. Commodity Channel Index (CCI)**

In 1980 Donald Lambert featured Commodity Channel Index (CCI) in Commodities magazine. The Commodity Channel Index (CCI) is a versatile indicator that can be used to identify a new trend or warn of extreme conditions. The Interesting thing was, Lambert originally developed CCI to identify cyclical turns in commodities, but later people identified that CCI indicator can be successfully applied to indices, ETFs, stocks, and other securities.

The majority of CCI movement occurs between -100 and +100. A move that exceeds this range shows unusual strength or weakness that can foreshadow an extended move. Think of these levels as bullish or bearish filters. so we can say Technically,

**1) CCI favors the bulls when positive**
**
2) CCI favors the bears when negative.**

It is not simple Identifying overbought and oversold levels or BULLISH or BEARISH can be tricky with the Commodity Channel Index (CCI).

**So, how can we use CCI in our trading activities?**

The CCI typically oscillates above and below a zero line. Normal oscillations will occur within the range of +100 and -100.
So as highlighted above, CCI can be used in two ways:
** 1) For determining Overbought/Oversold situations.**
**
2) For determining Bullish Bearish Divergences**

**Overbought/Oversold**

A move above +100 is for a **bullish signal **
A move below -100 is for a **bearish signal**

**Divergence**

i) A Bullish divergence can be confirmed with a break above zero in CCI. ii) A bearish divergence can be confirmed with a break below zero in CCI.

**2. Stochastic Oscillator**

In early 1950s George C. Lane developed a momentum indicator and named it as ‘Stochastic Oscillator’. By analyzing the stock prices he followed the speed or the momentum of price because momentum changes direction before price and that was the main point of his whole theory.

Before proceeding further you need to learn two parameters that are heart and soul of Stochastic

**1) %K Line ( Fast Stochastic )**

**2) %D Line ( Slow Stochastic)**

D Line > over 80 Level > overbought > **SELL SIGNAL**
D Line > below 20 Level > oversold > **BUY SIGNAL **

It has been observed that when fast stochastic ( K Line) rises above slow stochastic ( D Line) then ‘It is a BUY SIGNAL’(as long as the values are below 80) and vice versa, ( As shown in figure as green circle below)

An easy way to remember the difference between the two is to think of the fast stochastic as a sports car and the slow stochastic as a limousine. Like a sports car, the fast stochastic (K) is agile and changes direction very quickly in response to sudden changes. The slow stochastic (D) takes a little more time to change direction. Mathematically, the two oscillators are nearly the same except that the slow stochastic's %K is created by taking a three-period average of the fast stochastic's %K. Taking a three-period moving average of each %K will result in the line that is used for a signal.

The main function of the stochastic indicator is to provide information about momentum and the strength of a trend. This means that the stochastic indicator tells you how fast/strong price went up or down.

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*Note: The Author is a SEBI Registered Research Analyst (SEBI Regd. INH100005729).*