CCI, developed by Donald Lambert, is a momentum oscillator originally designed for commodity markets, now widely used across various financial markets. CCI measures how far current price deviates from statistical average price, identifying overbought/oversold conditions and trend reversals.
TP (Typical Price) = (High + Low + Close) / 3 SMA = N-period simple moving average of TP MD (Mean Deviation) = Σ|TP - SMA| / N CCI = (TP - SMA) / (0.015 × MD) Standard period: N = 20 Constant 0.015 ensures approximately 70-80% of CCI values fall between -100 and +100
Standard CCI (20 periods): Most commonly used, suitable for most markets
Short-term CCI (10-14 periods): More sensitive, suitable for short-term trading
Long-term CCI (30-40 periods): Smoother, suitable for long-term trend analysis
CCI Divergence: Price and CCI move in opposite directions, signals trend reversal
CCI > +100: Overbought zone, price may pull back
CCI < -100: Oversold zone, price may bounce
CCI crosses above +100: Strong uptrend signal, can chase rally
CCI crosses below -100: Strong downtrend signal, can chase decline
CCI falls back below +100 from overbought: Sell signal
CCI rises above -100 from oversold: Buy signal
Zero Line Cross: CCI crossing above zero is bullish, below is bearish
Bearish Divergence: Price makes new high but CCI doesn't, signals decline
Bullish Divergence: Price makes new low but CCI doesn't, signals rise
CCI performs best in volatile markets. In trending markets, CCI breaking above +100 or below -100 can signal trend continuation rather than reversal. In ranging markets, CCI oscillates between +100 and -100, useful for identifying overbought/oversold conditions. CCI divergence is powerful reversal signal, especially when occurring near key support/resistance. Many traders combine CCI with trend indicators, seeking CCI signals in trend direction.
Identifies overbought/oversold conditions, suitable for volatile markets, strong divergence prediction capability, can be used for trend-following and reversal trading, no upper/lower limits can capture extreme moves
Fewer signals in low volatility markets, prone to false signals, requires combination with other indicators, overbought/oversold thresholds may need market-specific adjustment
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