What is the Commodity Channel Index (CCI) Indicator?
The Commodity Channel Index (CCI) is a momentum oscillator that measures how far price has stretched from its recent average. It sits in its own panel under your chart, swinging around a zero line. Traders use it to read momentum direction and spot when price is overextended past +100 or -100.
CCI is unbounded. Readings blow past +100 or -100 and keep climbing during strong trends. The indicator is showing you a real move is in motion.
How is the Commodity Channel Index (CCI) Indicator Calculated?
The formula compares current typical price to its moving average, then scales the difference by mean deviation:
CCI = (TP − SMA(TP, n)) / (0.015 × MD)
- TP (Typical Price) = (High + Low + Close) / 3
- SMA(TP, n) = the n-period simple moving average of TP
- MD = the mean deviation, or average of |TP − SMA| over n periods
- Default lookback = 20 periods
CCI tells you how far current price has drifted from its recent norm. The 0.015 constant normalizes the output so most readings sit within ±100, which is why those levels matter.
How to Use the Commodity Channel Index (CCI) Indicator in Trading?
Use the zero line as your momentum filter and ±100 as your stretched zones. Confirm every CCI signal with price action.
- Zero-line trend filter: Favor longs when CCI holds above 0, shorts when it stays below 0. When CCI flips back and forth across zero, the market is choppy. Stand down.
- Mean-reversion entries: Buy when CCI drops below -100 and reclaims it while price holds support. Sell when CCI pushes above +100 and loses it as price rejects resistance.
- Trend continuation: In an uptrend, a push and hold above +100 confirms upside momentum. In a downtrend, a push and hold below -100 confirms downside momentum. Strong trends ignore the overbought label.
- Divergence reversals: When price makes a lower low but CCI makes a higher low, selling pressure is fading — bullish divergence. When price makes a higher high but CCI makes a lower high, buyers are running out of gas — bearish divergence.
- Stops and exits: Place your stop beyond the swing high or low that invalidates the setup. For exits, use a CCI cross back through 0 (momentum flip) or a return inside ±100 (extension fading), depending on whether you're trading trend or reversion.