Commodity Channel Index (CCI)
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Definition
CCI measures how far the current typical price deviates from its moving average in units of mean absolute deviation; despite the name it is used on all asset classes, not just commodities.
How to read it
CCI is effectively unbounded but oscillates mostly between -100 and +100. Readings above +100 indicate an unusually strong upside move (potential new uptrend or overbought, depending on use); below -100 indicate a strong downside move. The zero line is the mean: crossing above zero is a bullish momentum shift, below zero bearish. It can be used two ways - as an overbought/oversold fade tool inside +/-100, or as a breakout/trend tool when it pushes beyond +/-100.
How practitioners use it
Used as context among multiple indicators — never as a standalone signal to act.
Less common professional uses
The dual personality (fade the +/-100 vs. trade the +/-100 breakout) means using it the wrong way for the regime is a built-in failure mode; gate with a trend filter to pick the mode. Because CCI is unbounded and volatility-scaled by MAD, extreme prints during volatility spikes overstate 'overbought' - normalize expectations by instrument. Shorter lookbacks make CCI extremely noisy; it is highly parameter-sensitive, so avoid optimizing the period to fit history (curve-fitting risk).
Sources & provenance
Donald Lambert 1980
This page is educational content published by Pachira Aquatica Global LLC. It is not investment advice and not a recommendation.