The Commodity Channel Index (CCI) was developed by Donald Lambert and published in 1980.
The CCI is an oscillator indicator, used in technical analysis, which illustrates where a security or asset has been over-bought or over-sold.
While the Commodity Channel Index was originally conceived to identify cycles in commodity markets - as its name suggests - the indicator has been by applied by technical analysts to stocks, indices and currencies.
This is because the CCI considers the current price of a security or asset to its average price over the period.
Where the CCI is relatively low, the security is over-sold and its price low, whereas where the CCI is relatively high, the security is over-bought and its price high.
The CCI therefore illustrates to investors where there could be changes in the direction of price movement for the security.
The way the Commodity Channel Index is calculated means that approximately 75% of price action will appear between the +100 (an over-bought mark) and -100 (an over-sold mark) levels on the chart.
urges above +100 reflect strong price action that can signal the start of an uptrend.
Plunges below -100 reflect weak price action that can signal the start of a downtrend.
In a ranging market, technical analysts would look for a buy signal if the Commodity Channel Index turns up from below -100, and they would look for a sell signal where the CCI turns down from above +100.
Another source of signals that the Commodity Channel Index provides is when it diverges from the price action.
This is because directional movement of the CCI does not confirm the price.
Such bullish and bearish divergences can be use to detect early momentum shifts and allow an investor or trader to anticipate trend reversals in the price action.
Divergence patterns on the CCI are similar to those of other oscillators: where the price makes a lower low and CCI makes a higher low there is a bullish divergence; where there the price makes a higher high and CCI makes a lower high there is a bearish divergence.
The investor or trader would go long on a bullish divergence and go short on a bearish divergence.
Be cautious though, as divergences can be misleading in a strong trend.
Where there is a strong uptrend there may be a number of bearish divergences in evidence before the price actually makes a top.
Conversely, there may be bullish divergences after appear often in a strong downtrend.
The Commodity Channel Index should therefore be used in addition with other indicators to determine the presence and strength of a trend in order to best interpret the buy and sell signals.
Note that the Commodity Channel Index is unbound oscillator, which means that there are no upside or downside limits on what measurements can be achieved.
The CCI is an oscillator indicator, used in technical analysis, which illustrates where a security or asset has been over-bought or over-sold.
While the Commodity Channel Index was originally conceived to identify cycles in commodity markets - as its name suggests - the indicator has been by applied by technical analysts to stocks, indices and currencies.
This is because the CCI considers the current price of a security or asset to its average price over the period.
Where the CCI is relatively low, the security is over-sold and its price low, whereas where the CCI is relatively high, the security is over-bought and its price high.
The CCI therefore illustrates to investors where there could be changes in the direction of price movement for the security.
The way the Commodity Channel Index is calculated means that approximately 75% of price action will appear between the +100 (an over-bought mark) and -100 (an over-sold mark) levels on the chart.
urges above +100 reflect strong price action that can signal the start of an uptrend.
Plunges below -100 reflect weak price action that can signal the start of a downtrend.
In a ranging market, technical analysts would look for a buy signal if the Commodity Channel Index turns up from below -100, and they would look for a sell signal where the CCI turns down from above +100.
Another source of signals that the Commodity Channel Index provides is when it diverges from the price action.
This is because directional movement of the CCI does not confirm the price.
Such bullish and bearish divergences can be use to detect early momentum shifts and allow an investor or trader to anticipate trend reversals in the price action.
Divergence patterns on the CCI are similar to those of other oscillators: where the price makes a lower low and CCI makes a higher low there is a bullish divergence; where there the price makes a higher high and CCI makes a lower high there is a bearish divergence.
The investor or trader would go long on a bullish divergence and go short on a bearish divergence.
Be cautious though, as divergences can be misleading in a strong trend.
Where there is a strong uptrend there may be a number of bearish divergences in evidence before the price actually makes a top.
Conversely, there may be bullish divergences after appear often in a strong downtrend.
The Commodity Channel Index should therefore be used in addition with other indicators to determine the presence and strength of a trend in order to best interpret the buy and sell signals.
Note that the Commodity Channel Index is unbound oscillator, which means that there are no upside or downside limits on what measurements can be achieved.
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