Commodity Channel Index (CCI)

Name Type Prerequisite Use Cases
Commodity Channel Index (CCI) Momentum SMA Spotting new trends or extreme overbought/oversold conditions.

Definition

The Commodity Channel Index (CCI) is a momentum-based oscillator used to help determine when an investment vehicle is reaching a condition of being overbought or oversold. It is also used to assess direction and strength of price returns.

Mathematical Equation

\[ CCI = \frac{TP - \text{SMA}(TP)}{0.015 \times \text{MD}} \]

Where:

  • \(TP = \frac{\text{High} + \text{Low} + \text{Close}}{3}\)

  • \(MD\) = Mean Deviation

Special cases

  • Maximum possible value: Unbounded
  • Minimum possible value: Unbounded
  • Behavior: Oscillates mostly between -100 and +100, but can exceed these limits. It measures the variation of a price from its statistical mean.

Visualization

CCI

Trading Significance

  1. Overbought/Oversold: CCI > +100 implies overbought conditions. CCI < -100 implies oversold conditions.

  2. Trend Emerging: Movement from inside the +/-100 range to outside can signal a new trend.