Commodity Channel Index
Measures how far price has deviated from its statistical average, oscillating above and below zero with no fixed maximum or minimum.
Description
The Commodity Channel Index was developed by Donald Lambert and published in 1980. Despite the name, it is applied broadly across stocks, forex, and futures. CCI measures the deviation of typical price from its statistical mean, expressed as a multiple of the mean deviation. Unlike most oscillators, it has no fixed upper or lower boundary.
How It Works
Typical Price (TP) = (high + low + close) / 3. Mean TP = SMA of TP over N periods (default: 20). Mean Deviation = average of |TP − Mean TP| over N periods. CCI = (TP − Mean TP) / (0.015 × Mean Deviation). The constant 0.015 was chosen so that roughly 70–80% of readings fall between −100 and +100 under normal market conditions.
How to Read It
Readings above +100 indicate strong upside momentum or the beginning of an uptrend — the original interpretation treats crossing +100 as a buy signal. Below −100 indicates strong downside momentum. Crossovers of the zero line signal trend direction changes. Divergence between CCI and price — particularly when CCI fails to confirm a new price extreme — warns of potential reversals.
Common Uses
- Entry signals when CCI crosses ±100
- Identifying overbought/oversold extremes (±200 is extreme)
- Divergence detection at price turning points
- Trend confirmation alongside other indicators
Caveats
The unbounded scale is counterintuitive — there is no absolute “too high” reading. Readings of ±300 or more can occur during extreme trends and do not reliably indicate immediate reversal. The 0.015 constant and the period both significantly affect the indicator’s behavior. CCI performs best in trending markets for trend-following signals and in ranging markets for mean-reversion signals — but switching between the two interpretations requires knowing the current regime.