CCI — Commodity Channel Index

Overview

The Commodity Channel Index (CCI), developed by Donald Lambert in 1980, measures the deviation of price from its statistical average. Despite the name, it works on every asset class — not just commodities. CCI is unbounded; it usually oscillates between −100 and +100 but can extend far beyond in strong moves.

Formula

Typical Price (TP) = (High + Low + Close) / 3
SMA = N-period moving average of TP
Mean Deviation = average of |TP - SMA| over N periods

CCI = (TP - SMA) / (0.015 × Mean Deviation)

Default N = 20

The 0.015 constant scales most values into the −100 to +100 range.

Default Settings

• Period: 20 (Lambert’s original) or 14
• Overbought: +100
• Oversold: −100

How to Use It

1. Overbought / Oversold Reversals

• CCI above +100 — potentially overbought
• CCI below −100 — potentially oversold

In ranging markets, reversal trades from these extremes have edge.

2. Trend-Following (Extreme Continuation)

Unique to CCI: many traders use moves beyond ±100 as trend-following entries instead of reversal signals. The logic: extreme readings often indicate strong directional momentum that continues.

• CCI crosses above +100 — enter long, ride momentum
• CCI crosses below −100 — enter short, ride downside

3. Zero-Line Cross

Less aggressive trend signal: above 0 = bullish bias, below 0 = bearish bias.

4. Divergence

Standard divergence rules apply, similar to RSI.

Strengths

• Unbounded scale captures extreme moves better than 0–100 oscillators
• Versatile — works as both reversal and trend-following indicator
• Effective on commodities, forex and indices alike

Weaknesses & Common Mistakes

• Choosing wrong mode — using CCI as reversal in a trend, or trend-follower in a range
• Unbounded values can mislead — +400 doesn’t mean “extremely overbought”; it’s relative to recent mean deviation
• Whipsaws around ±100 — price hovers near the threshold, triggers / un-triggers signals

Best Combinations

• CCI + ADX — ADX decides if to use CCI as reversal (low ADX) or trend-follower (high ADX)
• CCI + Moving Average — trade CCI signals only in MA-confirmed trend direction
• Multi-timeframe CCI — HTF CCI sets direction, LTF CCI provides entries

Practical Example

Gold daily chart, strong uptrend, ADX = 30. CCI crosses above +100 after a brief consolidation. Long entry, stop below recent swing low. Hold until CCI crosses back below zero. Captures bulk of trend continuation move.

Bottom Line

CCI is a Swiss Army knife — reversal tool in ranges, momentum tool in trends. Pick the right blade for the conditions.