Commodity Channel Index (CCI)
Commodity Channel Index is a momentum indicator that indicates the upcoming overbought or oversold situation. This index is derived from the cyclical movements of commodities or assets. Technical analysts use this indicator to identify the buy or sell signals. KEEV makes the process of using CCI super easy for users.
In This Article -
- What is the Commodity Channel Index (CCI) ?
- How To Analyze a Chart Using Commodity Channel Index (CCI)?
- How To Use Commodity Channel Index (CCI) on KEEV?
Category – Momentum
Type – Leading
What is the Commodity Channel Index (CCI)?
The Commodity Channel Index is a momentum indicator that measures the relative changes in the prices from the current price to the average price of a particular period.
Donald Lambert is the creator of the concept of CCI, primarily aiming to identify the cyclical movements in trade commodities. By measuring relative changes in the prices, CCI identifies overbought and oversold levels.
You can calculate the CCI by using the formula below:
Commodity Channel Index (CCI) = Typical Price − MA
0.015 × Mean Deviation
How to analyze a chart using the Commodity Channel Index (CCI)?
As you can see in the graph above, CCI oscillates above and below 0. When it is above 100, it is considered overbought. Conversely, it is assumed oversold when it is below -100.
The basic concept of CCI is that commodities move in cycles having highs and lows on a timely basis. Therefore, when those cycles' reversals are above to take place, it indicates a buy or a sell signal.
Using Lambert's CCI trading guidelines, buy and sell signals are generated based on movements above +100 and below -100.
It will only generate a buy or sell signal 20 to 30% of the time since 70 to 80 percent of the CCI values are between 100 and -100.
As soon as the CCI reaches +100, the price enters a strong uptrend, indicating a buy signal. And when the CCI reaches -100, it indicates a sell signal as the price enters into a strong downtrend.
Related Articles
Money Flow Index
Overview – The Money Flow Index is an indicator that computes the flow of money into and out of security during a specific period. It is measured by positive and negative Money Flow Values which creates a money ratio. The Money Ratio is later on ...Relative Strength Index (RSI)
RSI is a momentum indicator measuring the change in the magnitude of a security’s price with time. It is expressed as a line graph on a scale of 0 to 100. While 0 is associated with an extremely bearish trend, 100 denotes a highly bullish trend. A ...Average Directional Index (ADX)
When you are trading in the direction of a strong trend, it reduces the risk and increases the chances of profit. The average directional index (ADX) helps us to understand when the price is trending strongly. At times it's considered to be the ...Relative Strength Index (RSI) Divergence
Relative Strength Index (RSI) divergence is a technical analysis indicator that traders use to identify potential reversals in the direction of a security's price trend. It measures the relationship between price and momentum to identify when the ...Keltner Channel
The Keltner Channel was initially introduced by Chester Keltner in 1960. Keltner Channel is a trend-following as well as a volatility-based indicator that can be utilized to identify reversals with channel breakouts and channel direction. Channels ...