Commodity Channel Index (CCI)

Introduced by Donald Lambert, the Commodity Channel Index (CCI) was designed to identify cyclical turns in commodities but is now commonly applied to stock analysis. Its premise is that stocks move in cycles, with highs and lows forming at visually identifiable (yet ever changing) periodic intervals. It is generally advised that one-third of the cycle length be used as a period for CCI. The CCI calculation can be applied to any indicator to determine the direction and strength of its trend.

CCI oscillates around zero. When CCI crosses up through +100 the indicator being analyzed is considered to be in a uptrend; when it crosses down through -100 the indicator is considered to be in a strong downtrend.

Traders and investors use the commodity channel index to help identify price reversals, price extremes and trend strength. As with most indicators, the CCI should be used in conjunction with other aspects of technical analysis. CCI fits into the momentum category of oscillators. In addition to momentum, volume indicators and the price chart may also influence a technical assessment. It is often used for detecting divergences from price trends as an overbought/oversold indicator, and to draw patterns on it and trade according to those patterns. In this respect, it is similar to bollinger bands, but is presented as an indicator rather than as overbought/oversold more on Wikipedia.