CCI indicator

Commodity Channel Index - CCI is an oscillating indicator created in 1980 by Donald Lambert. He developed this indicator to identify cyclical movements in commodity charts, but this technical indicator has also been used on efficient stock indices and forex markets.

Correct use of CCI

The CCI indicator provides traders with a lot of information for analysis such as signaling a trend on a chart or a warning sign of overbought and oversold conditions. It could signal the start of a new trend or that the current trend has gone too far and too fast and a high possibility of an early reversal.

The CCI indicator measures the current price relative to the average price over a specific time frame. When the CCI is above or below the average, it is a signal used to quantify the overbought and oversold levels of the current price on the chart.

The number of CCI cycles set on the chart is used to calculate the simple moving averages and the average deviation. Lambert sets the constant at 0.015 so that 70% to 80% of the CCI value will range from -100 to +100. With a shorter cycle, the CCI will fluctuate more strongly. And conversely, CCI has a longer period, will be less volatile. If the CCI is above +100, it is seen as an overbought signal, and below -100 is considered an oversold signal.

Positive positive CCI indicators can signal that the knit price is at a much higher level than the average price at a particular time and shows that the price is leaning more towards the upside. A negative low CCI can signal that the price is at a much lower level than the average and that the price is in a stronger downtrend.

The CCI indicator can be used as a trend indicator. When the CCI moves above +100, it signals momentum and the price action is highly likely to form a potential uptrend. The CCI indicator moves below -100, signaling momentum and price action forming a potential downtrend.

Technical analysts can use the CCI indicator to identify an overbought or oversold signal that could signal a high possibility of an average price reversal.

Up and down divergence is also used to observe momentum weakness which signals a trend with weak momentum that is likely to reverse as the CCI and price create a divergence.

The CCI indicator can provide the trader with the context of the price's momentum and time relative to the average price over a timeframe traded by the trader.