Commodity Channel Index (CCI)

About the CCI

The Commodity Channel Index (CCI) is an oscillator that compares current price with a moving average of a fixed number of days and then normalizes it by dividing it with a value based on a mean deviation.

The CCI is useful to determine when an instrument has been overbought or oversold. It fluctuates between a range of +100 and -100. Typically when the CCI moves over 100 it is considered overbought, whereas under 100 is said to be oversold.

Don’t let the name confuse you! The CCI Commodity Channel Index was originally created for use with commodities, but it is now also used with other types of investment instruments, such as currencies and stocks.

How It Works

Just like other momentum oscillators, CCI usually leads price action and turns before prices at each extreme. It can warn you of an impending change in the direction of a price movement of an asset by identifying potential peaks and valleys in the price.

By looking for divergence between price and CCI, you can find a good buy or sell signal. For example in the chart below, we see a negative divergence. CCI is declining while prices are still rising.

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