What is the Commodity Channel Index (CCI)?
The Commodity Channel Index (CCI) is a momentum-based oscillator used in technical analysis to help determine when an investment vehicle is reaching overbought or oversold conditions. Developed by Donald Lambert in 1980, it measures the current price level relative to an average price level over a given period. Originally designed for commodities, it’s now widely applied to stocks, forex, and futures.
How it Works
CCI calculates the difference between the current typical price (average of high, low, and close) and its simple moving average (SMA) over a specific period. This difference is then divided by the mean deviation of the typical price. The result oscillates around a zero line.
Trading Signals
Generally, a CCI value above +100 suggests an overbought condition, potentially signaling a sell. Conversely, a CCI value below -100 indicates an oversold condition, potentially signaling a buy. Divergences between price and CCI can also provide signals; bullish divergence (price makes lower lows, CCI makes higher lows) suggests a potential buy, and bearish divergence (price makes higher highs, CCI makes lower highs) suggests a potential sell.
Basic Settings
The default period for CCI is typically 20. However, traders often adjust this based on the asset and timeframe. Shorter periods (e.g., 14) are more sensitive to price changes, while longer periods (e.g., 25) provide smoother signals. TradingView allows easy customization of this period within the indicator settings. This information is for educational purposes only, not financial advice.