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CCI is an oscillator that provides
an indication of overbought or oversold markets.
Overview
- 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.
Interpretation
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.
Signals
- 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.
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