What Is the Commodity Channel Index?

The Commodity Channel Index (CCI) is a momentum oscillator that measures how far price has wandered from its historical average. Born in the world of commodities, CCI now plays the field—from stocks to currencies. It’s versatile, bluntly honest, and works best when paired with friends (another indicator like MACD).

The formula is straightforward, but don’t let the math fool you:

CCI = (Typical Price − SMA) / (0.015 × Mean Deviation)

Where:

• Typical Price = (High + Low + Close) / 3
• SMA = Simple Moving Average of the Typical Price
• Mean Deviation = Average absolute difference from SMA

The magic constant 0.015 keeps most values inside the -100 to +100 zone, where interpretation gets interesting.

Reading the CCI Like a Trader

The Rules of the Range

• Above +100: Market is overbought or gaining serious momentum
• Below -100: Market is oversold or losing steam fast
• Between -100 and +100: Nothing to see here—wait it out or look elsewhere

Entry & Exit Signals

• Buy when CCI dips below -100 and hooks upward
• Sell when CCI breaks above +100 and curves down
• Divergences are your early warnings:
  • Bullish: Price makes new lows, CCI doesn’t
  • Bearish: Price makes new highs, CCI shrugs

These aren’t gospel—just alerts. Pair with volume, price action, or a trend indicator like a moving average.

Find Your Cycle: Tuning the Timeframe

Default setting? 20 periods.
Smarter setting? 1/3 of your asset’s cycle.

How to Nail the Right Interval:

1. Pull up a 1-year chart
2. Mark two significant highs or lows
3. Count the bars in between
4. Divide by 3

Example:
Cycle from Sept 11 to Jan 29 = 140 bars
140 ÷ 3 = ~47 period CCI

More accurate interval = fewer false positives. It’s worth the five-minute chart dive.

Using CCI in Real Trading

1. Trend Confirmation

When the CCI moves above +100 and stays there—momentum is in control. Ride the wave, but tighten stops if divergence creeps in.

2. Mean Reversion

Extreme CCI values (+200, -200) = red flags. These are your cue for reversals, not FOMO entries.

3. Intraday Adaptation

Short-term traders love CCI on the 5–15 min chart:

• Use +100/-100 for normal assets
• Adjust to +200/-200 on volatile names

Layer on support/resistance or candlestick confirmation for sharper timing.

Avoid These CCI Rookie Mistakes

• Using it alone: Always blend CCI with something else—pivot points, moving averages, price action.
• Overreacting to every cross: CCI swings a lot. Focus on structure, not every blip.
• Ignoring volatility: Tailor your thresholds to the asset. Don’t treat a biotech like the S&P.

Quick CCI Checklist

Before every trade using CCI, ask:

• Is the CCI clearly above +100 or below -100?
• Is it hooking back (showing a possible reversal)?
• Do other indicators or price action confirm the story?
• Am I adjusting for asset volatility?

If yes, proceed. If not, skip the setup.

Final Word

The Commodity Channel Index won’t tell you what to do—but it will tell you when the market’s out of line. Use it to find moments where price deviates from the average and may be ready to snap back—or break out. Add confirmation, trust your setup, and stop overthinking the math.

If it’s curving up from -100 on a strong support level, you know what to do.