Thanks for asking.
The Commodity Channel Index or CCI, gives traders an asset value’s deviation from the asset’s statistical average. Traders apply it in defining cyclical conditions and the latest commodity market trends.
To arrive at CCI, take the Typical Price, TP, of your chosen commodity, subtract the value of the commodity’s Simple Moving Average within the same period, that is, Average Typical Price, initialed ATP, and dividing the resulting value by the Mean Absolute Deviation, MAD, of the commodity’s Typical Price.
The CCI oscillator lets traders identify extremes and trend strengths in prices. Some traders interpret price extremes when CCI falls outside the plus100 and minus 100 border, thereby looking for price reversals within such ranges.
Another strategy features interpreting a plus 100 CCI as indicating a breakout and deciding to trade within this trend until this CCI ventures back under plus 100. Conversely, CCI falling under minus 100 creates a robust downtrend, signaling a trader to short positions.
This oscillator spots a security’s cyclical movements. Though the CCI swings past zero, the absence of a top and bottom limit emphasizes its function as a momentum indicator. Like RSI’s and slow stochastics, CCI’s have a 14-period default. Note that a short setting increases the sensitivity and total signals.
This indicator compares an asset’s price change with its average price movement. By showing prices beyond the average, soaring positive figures indicate strength. Conversely, low negative figures indicate below-average prices, hence, representing weakness.
The CCI not only acts as a coincident but also a leading signal. As a coincident metric, shifts past +100 mark a price action strong enough to spark an uptrend. Those under -100, on the other hand, anticipate a downtrend triggered by weak price action.
As a leading signal, speculators track oversold and overbought positions likely to predict mean reversions. Again, bearish and bullish variations may uncover momentum changes and foretell trend reversals. While it’s mostly used for analyzing commodities, the CCI also applies to stocks.
Hi Brian, thanks for being here.
The Commodity Channel Index (CCI) refers to an oscillator used to determine the current price level in relation to an average price level for a particular time period. The index is considered relatively high when prices are much higher than their average, and relatively low when prices are much lower than their average. This way, CCI is used to determine overbought and oversold levels.
The CCI value that’s above zero indicates the price is above the historic average, while the CCI value lower than zero suggests that the price is below the historic average.
High CCI value of 100 or move tell us that the price is far above the historic average, and similarly, low readings under -100 indicate a price that’s below the historic average.
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