What is the Commodity Channel Index (CCI) Indicator?
The Commodity Channel Index (CCI) is a momentum oscillator that measures how far price is from its recent average, plotted in a separate panel around a zero line. Traders use it to gauge bullish vs bearish momentum and to spot stretched conditions using common reference levels at +100 and -100. CCI is unbounded, so readings can extend beyond those levels during strong trends or volatility expansions.
How is the Commodity Channel Index (CCI) Indicator Calculated?
The CCI is calculated by comparing the current typical price to its simple moving average and scaling that difference by the mean deviation: CCI = (TP − SMA(TP, n)) / (0.015 × MD). TP is Typical Price = (High + Low + Close) / 3, SMA(TP, n) is the n-period simple moving average of TP, and MD is the n-period mean deviation of TP from its SMA (the average of |TP − SMA|). The default lookback period is commonly 20.
How to Use the Commodity Channel Index (CCI) Indicator in Trading?
To use CCI in trading, treat the zero line as a momentum regime filter and the ±100 levels as “stretched” zones where reversals or continuations become actionable with confirmation from price.
- Zero-line trend filter: Favor longs when CCI holds above 0 and shorts when it holds below 0; repeated flips signal chop.
- Mean-reversion entries: Buy when CCI moves below -100 and then reclaims -100 as price holds support; sell when CCI moves above +100 and then loses +100 as price rejects resistance.
- Trend continuation: In an uptrend, a push and hold above +100 confirms strong upside momentum; in a downtrend, a push and hold below -100 confirms strong downside momentum.
- Divergence reversals: Bullish divergence (price lower low, CCI higher low) signals selling pressure weakening; bearish divergence (price higher high, CCI lower high) signals buying pressure fading.
- Stops and exits: Place stops beyond the most recent swing high/low that invalidates the setup; common exits use a CCI loss of 0 (momentum flip) or a return back inside ±100 (extension fading), depending on whether you’re trading trend or reversion.