Commodity Channel Index

Overview - CCI Average

The commodity channel index (CCI) is an oscillator used to identify cyclical trends in a security.  It gained its name because it was originally used to analyze commodities.  The formula for the CCI is as follows:

While the CCI will oscillate above and below the zero line, it is more of a momentum indicator, because there is no upward or downward limit on its value.  The default period for the CCI indicator is 14 periods, just as the slow stochastics and RSI.  Remember, if you choose to use a shorter setting, the number of signals and sensitivity of the indicator will increase.

How to trade using Commodity Channel Index (CCI) 

Traders have now begun to not only use the CCI to trade commodities, but also for stocks as well.  A rule of thumb for the commodity channel index is that oversold is - 100 and overbought +100.  While traders will look for divergences in the CCI and the price trend, trend line breaks of the CCI is also very popular.  The real story about the CCI is not the indicator, but the community that has been developed around the indicator.  An independent trader Ken Wood, has created the "CCI University" that teaches detailed methods on how to trade profitably with the CCI. 

Commodity Channel Index (CCI) Chart Example

The trendline break of the CCI Average leads to higher prices.  

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