CCI is an oscillator that provides an indication of
overbought or oversold markets.
- CCI is usually used as an overbought/oversold indicator
- CCI can also be used for timing buy/sell signals
The Commodity Channel Index, CCI, was designed to identify the
beginning and the end of commodity market cycles by Donald Lambert. It has also
proven effective for other markets. CCI compares the current mean price with the
average mean price over a period of usually 20 days.
The CCI indicates the price is increasingly high compared to
average prices as it moves towards +100. As the CCI drops towards -100, it
indicates that the price is increasingly low compared to average prices.
- CCI provides a warning of overbought and oversold markets when
the line crosses the +100 or the -100 levels. The actual buy or sell signal
is usually provided, however, when the line then crosses back over
the +/-100 level.
- Divergence from the price is also a good warning of a possible
correction or trend reversal.
- Zero-line crossings can often provide a confirmation buy/sell
signal or a complimentary warning of a change in trend.