Commodity Channel Index - CCI

An oscillator used in technical analysis to help determine when an investment vehicle has been overbought and oversold. The Commodity Channel Index, first developed by Donald Lambert, quantifies the relationship between the asset's price, a moving average (MA) of the asset's price, and normal deviations (D) from that average. It is computed with the following formula:

The CCI has seen substantial growth in popularity amongst technical investors; today's traders often use the indicator to determine cyclical trends in not only commodities, but also equities and currencies.

The CCI, when used in conjunction with other oscillators, can be a valuable tool to identify potential peaks and valleys in the asset's price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of the asset.

The CCI or Commodity Channel Index is a means by which the variation of a security's price is calculated from its statistical mean.
Much like the Average Directional Movement Index, the CCI can help give a valuable measurement of the overall trendiness of a market. The faster the CCI is accelerating, the more strongly the market is trending. While it is perhaps mathematically possible for the CCI to move upward while the market does not, this is unlikely.

Typically oscillating between +100 and -100, a CCI reading above +100 implies an overbought condition (and a pending price correction) while readings below -100 imply an oversold condition (and a pending rally).

Keep in mind that the CCI can provide important information to a trader even when it is not giving entry signals. If a market stays inside the +/-100 range most of the time, it's demonstrating the absence of a trend, so it might be best to avoid that market or use a countertrend trading strategy.

Despite its name, the CCI can be used effectively on any type of security, not just commodities.

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