Commodity Channel Index [CCI]

The commodity channel index (CCI) is an oscillator originally introduced by Donald Lambert in an article published in the October 1980 issue of Commodities magazine (now known as Futures magazine).
Since its introduction, the indicator has grown in popularity and is now a very common tool for traders in identifying cyclical trends not only in commodities, but also equities and currencies. The CCI can be adjusted to the timeframe of the market traded on by changing the averaging period.

The CCI typically oscillates above and below a zero line. Normal oscillations will occur within the range of +100 and −100. Readings above +100 imply an overbought condition, while readings below −100 imply an oversold condition. As with other overbought/oversold indicators, this means that there is a large probability that the price will correct to more representative levels.
Since Lambert's original guidelines, traders have also found the CCI valuable for identifying reversals. The CCI is a versatile indicator capable of producing a wide array of buy and sell signals.

• CCI can be used to identify overbought and oversold levels. A security would be deemed oversold when the CCI dips below −100 and overbought when it exceeds +100. From oversold levels, a buy signal might be given when the CCI moves back above −100. From overbought levels, a sell signal might be given when the CCI moved back below +100.
• As with most oscillators, divergences can also be applied to increase the robustness of signals. A positive divergence below −100 would increase the robustness of a signal based on a move back above −100. A negative divergence above +100 would increase the robustness of a signal based on a move back below +100.
• Trend line breaks can be used to generate signals. Trend lines can be drawn connecting the peaks and troughs. From oversold levels, an advance above −100 and trend line breakout could be considered bullish. From overbought levels, a decline below +100 and a trend line break could be considered bearish.