StockSignal
CCI 20 (Commodity Channel Index) measures how far the price has moved from its statistical average over 20 periods. Readings above +100 or below -100 may signal unusual strength or weakness.
The Commodity Channel Index (CCI) is a momentum oscillator developed by Donald Lambert that measures the current price level relative to an average price level over a specified period, typically 20 days. Despite its name, CCI works on any tradeable asset. It identifies cyclical turns by measuring how far price has deviated from its statistical mean.
The calculation:
Typical Price = (High + Low + Close) / 3 Mean Deviation = Average of |Typical Price - SMA(Typical Price)| CCI = (Typical Price - SMA(Typical Price)) / (0.015 × Mean Deviation)
The constant 0.015 is chosen so that approximately 75% of CCI values fall between -100 and +100.
Interpreting CCI-20 levels:
- CCI > +200: Very overbought; extreme momentum
- CCI +100 to +200: Overbought; strong bullish momentum
- CCI 0 to +100: Bullish but not extreme
- CCI -100 to 0: Bearish but not extreme
- CCI -200 to -100: Oversold; strong bearish momentum
- CCI < -200: Very oversold; extreme momentum
Why CCI matters:
- Trend identification: CCI above zero indicates uptrend
- Momentum measure: Distance from zero shows momentum strength
- Overbought/oversold: Extremes may indicate reversal points
- Statistical basis: Based on deviation from mean
Trading signals:
- CCI crosses above +100: Bullish momentum confirmed
- CCI falls below +100: Bullish momentum weakening
- CCI crosses below -100: Bearish momentum confirmed
- CCI rises above -100: Bearish momentum weakening
Trading strategies:
- Trend following: Buy when CCI breaks above +100; sell when breaks below -100
- Mean reversion: Buy extreme oversold; sell extreme overbought
- Zero-line cross: Trade crosses of zero line for trend changes
Divergence analysis:
- Bullish divergence: Price lower low, CCI higher low
- Bearish divergence: Price higher high, CCI lower high
Limitations:
- Unbounded: Can reach extreme values in trending markets
- False signals: CCI can stay overbought/oversold for extended periods
- Complexity: Calculation is more complex than simple oscillators
CCI's statistical foundation makes it effective for identifying price extremes relative to recent behaviour. It works best when combined with trend analysis and price pattern confirmation.