Commodity Channel Index (CCI 20)

CCI 20 measures how far price has moved away from its 20-period average. High positive or negative values can signal overbought or oversold levels.

The calculation:

Typical Price = (High + Low + Close) / 3
Mean Deviation = Average of |Typical Price - SMA of Typical Price|
CCI = (Typical Price - SMA of Typical Price) / (0.015 × Mean Deviation)

Interpreting CCI values:

• CCI > +100: Overbought; price significantly above average
• CCI < -100: Oversold; price significantly below average
• CCI near 0: Price near its average; neutral momentum
• Extreme values (±200+): Very strong momentum; potential exhaustion

Trading applications:

• Trend identification: Sustained readings above +100 indicate uptrend
• Reversal signals: CCI crossing back below +100 or above -100 can signal reversals
• Divergences: Price/CCI divergences warn of potential trend changes
• Zero line crossovers: Crossing above/below zero indicates momentum shift

Why the 0.015 constant:

• Scaling factor: Ensures about 70-80% of values fall between +100 and -100
• Standardisation: Makes readings comparable across different securities

Best practices:

• Combine with trend: Use CCI for timing within established trends
• Multiple timeframes: Confirm signals across different periods
• Avoid ranging markets: CCI works best in trending conditions

Originally developed for commodities, CCI is now widely used across all asset classes to identify cyclical trends and potential reversal points.