Commodity Channel Index

A momentum oscillator (CCI) measuring how far price has deviated from its statistical average, scaled so that most readings fall within plus or minus 100; values beyond that mark unusually strong or weak conditions.

Despite its name, the Commodity Channel Index is used across all asset classes, not just commodities. It takes the typical price (the average of the high, low, and close), subtracts a moving average of that typical price, and divides by the mean absolute deviation multiplied by a 0.015 constant. That constant is chosen so roughly 70 to 80 percent of values land between minus 100 and plus 100, making readings outside the band statistically notable. CCI oscillates around a zero line with no fixed upper or lower bound.

Readings above plus 100 indicate price is unusually far above its average — strong momentum, often the start of an uptrend rather than an immediate sell. Below minus 100 is the mirror. Traders use CCI three ways: as a zero-line cross for trend direction, as an extreme-reading momentum gauge, and — most usefully — for divergence, where price makes a new high but CCI does not, hinting the move is running out of fuel. Because it is unbounded, CCI can spike to plus or minus 200 or 300 in powerful moves.

CCI is essentially a more reactive, unbounded cousin of RSI and the Stochastic, and it shares their core limitation: extreme readings persist in strong trends, so an "overbought" CCI is a poor standalone sell signal. Its unbounded scale makes it better than bounded oscillators at distinguishing a merely strong move from an extraordinary one, but also noisier and more prone to false extremes on thin data. Its divergence signals are about as reliable as RSI's — useful as a warning, not a trigger. Like every single oscillator it performs best when confirmed by price structure or a second, differently-constructed indicator.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.