CCI

The Commodity Channel Index (CCI) is a technical analysis indicator created by Donald Lambert to identify cyclical trends in an asset’s price. By measuring the current price level relative to its average over a chosen period, the CCI highlights when an instrument is overbought or oversold, signaling potential reversals or continuation of a trend. Although originally designed for commodities, traders apply it to stocks, forex, and indices.

How It Works

The CCI calculation compares the typical price (average of high, low, and close) to its simple moving average and mean deviation.

Calculation Steps

• Typical Price (TP) = (High + Low + Close) / 3
• Simple Moving Average of TP (SMATP) = average of TP over the selected period (commonly 20)
• Mean Deviation = average of absolute differences between each TP and SMATP
• CCI = (TP – SMATP) / (0.015 × Mean Deviation)

The constant 0.015 scales the index so that roughly 70‑80 % of values fall between +100 and –100. Readings above +100 suggest overbought conditions; below –100 indicate oversold conditions. Traders also watch for divergences between CCI and price, as well as crossovers of the zero line to gauge momentum shifts.

Why It Matters

The CCI helps traders spot turning points in ranging markets and confirm the strength of trending moves. Its versatility across timeframes makes it useful for both short‑term swing traders and longer‑term position traders.

Example: A trader observes the CCI for a stock rise from –120 to +130 over five days, crossing the +100 threshold. This signals overbought territory, prompting a check for bearish divergence or a pullback before entering a long position. Conversely, a move from +110 back below –100 after a downtrend may indicate a buying opportunity as selling pressure exhausts.

By integrating CCI with other tools such as RSI or stochastic oscillators, traders can filter false signals and improve entry/exit timing, making the CCI a valuable component of a technical analysis toolkit.