What is Commodity Channel Index?

The Commodity Channel Index (CCI) is a technical analysis indicator used to measure the momentum of a particular asset. The CCI is based on the assumption that the price of an asset will frequently move above and below its average price, and that these movements can be used to identify potential market trends.

The CCI is calculated by taking the difference between the asset`s typical price and its simple moving average (SMA), and then dividing this difference by the mean absolute deviation of the typical price over a given period. The resulting value is then normalized by dividing it by 0.015 to provide a range of values between -100 and +100.

Traders and investors can use the CCI to identify potential overbought and oversold conditions in the market. For example, if an asset has a CCI value of +100, this may indicate that the asset is overbought and that a trend reversal may be imminent. Conversely, if an asset has a CCI value of -100, this may indicate that the asset is oversold and that a trend reversal may be imminent.

It is important to note that the CCI should not be used in isolation and should be used in conjunction with other technical analysis tools and indicators to confirm trading signals and identify potential market movements.