Commodity Channel Index (CCI)

The Commodity Channel Index (CCI) was developed by Donald Lambert in 1980, originally for commodities but now widely used across all asset classes. The indicator measures how far a security's price has deviated from its average price over a specified period (typically 20), expressed as a multiple of the mean deviation. The formula subtracts the simple moving average of the typical price (the average of high, low, and close) from the current typical price, then divides by a constant (0.015) times the mean deviation. This scaling ensures that approximately 70-80% of CCI values fall between +100 and -100 during normal conditions. Readings above +100 suggest the price is well above average (potentially overbought or in a strong uptrend), while readings below -100 suggest the price is well below average (potentially oversold or in a strong downtrend). Traders use CCI in multiple ways: as an overbought/oversold oscillator (buying when CCI rises above -100 from below, selling when it falls below +100 from above), as a trend indicator (staying long while CCI remains above +100, short while below -100), and for divergence analysis (when CCI diverges from price, it can signal potential reversals). The CCI is particularly effective in identifying cyclical turns in markets that exhibit periodic patterns.