Commodity Channel Index (CCI)
The Momentum Oscillator That Spots Deviations and Cyclical Turns
Don't let the name fool you – Donald Lambert's 1980 brainchild, the Commodity Channel Index (CCI), works wonders on stocks, forex, crypto, and everything in between. It's a momentum oscillator that measures how far price has strayed from its statistical average, scaled so most readings fall between ±100. The magic? It catches overbought/oversold extremes, flags emerging trends, and often spots reversals or cyclical swings before price fully commits. Versatile, unbounded, and still a favorite for timing entries in trending or ranging markets.
The Core Formula – Deviation Made Simple
Lambert's elegant equation:
CCI = \frac{\text{Typical Price} - \text{SMA}_n(\text{Typical Price})}{0.015 \times \text{Mean Deviation}}
- Typical Price (TP): (High + Low + Close) / 3
- SMAâ‚™: Simple Moving Average of TP over n periods (usually 20)
- Mean Deviation: Average absolute deviation of TP from the SMA
- 0.015: Lambert's constant – scales ~70–80% of readings within ±100
Result? An unbounded oscillator that spikes during strong moves and hovers near zero in chop.
Interpreting CCI Readings
Classic guidelines:
- Above +100: Overbought territory – strong bullish momentum (not always reversal!).
- Below –100: Oversold – powerful bearish momentum.
- Crossing +100 from below: Potential buy – momentum accelerating upward.
- Crossing –100 from above: Potential sell – downside gaining steam.
- Between ±100: Neutral/consolidation – waiting for breakout.
- Sustained extremes (>+200 or <–200): Very strong trend – ride it, don't fight it.
Unlike bounded oscillators, CCI can go wild (±300+) in parabolic moves.
Pro Trading Applications
Versatile setups:
- Trend entry: CCI breaks above +100 → long in uptrend; below –100 → short in downtrend.
- Mean reversion: Extreme reading + reversal candle → fade the move in ranges.
- Divergence power: Price higher high + CCI lower high → bearish reversal brewing.
- Zero-line filter: CCI crossing zero confirms momentum shift.
- Multi-timeframe: Higher-TF CCI >100 + lower-TF pullback → high-probability entry.
In strong trends, treat extremes as continuation signals – don't fade blindly.
Tuning and Pairings
Parameter tweaks:
- Short (10–14): Sensitive – great for intraday and volatile assets.
- Standard (20): Lambert's classic – balanced for most swings.
- Long (30–50): Smoother – filters noise on higher timeframes.
Best friends: Trend filters (MA/ADX), volume, RSI/MACD for divergence confirmation.
Strengths and Realistic Limitations
The Wins
- Excellent at spotting cyclical turns and emerging momentum.
- Unbounded – reflects true strength of extreme moves.
- Works across all assets and timeframes.
- Strong divergence and extreme-level signals.
The Gotchas
- False signals in choppy/sideways markets – whipsaws galore.
- Sensitive to noise – benefits from confirmation.
- No built-in direction – pair with trend tools.
Your CCI Launch Checklist
- Start with classic 20-period on Typical Price.
- Add trend context (price > 200-MA for longs).
- Require volume or candle confirmation on extremes.
- Watch divergences – often high-conviction setups.
- Use in multi-factor systems – rarely solo.
Key Takeaways
CCI measures price deviation from statistical mean – momentum with cyclical insight.
±100 levels flag extremes; sustained beyond = strong trends, reversals from = potential turns.
Great for trend entries, mean reversion, and divergence spotting.
Unbounded nature captures parabolic moves better than capped oscillators.
Filter heavily in ranges, confirm always – and CCI becomes a timing powerhouse. Stay deviated and trade sharp!
Commodity Channel Index (CCI)
The Momentum Oscillator That Spots Deviations and Cyclical Turns
Don't let the name fool you – Donald Lambert's 1980 brainchild, the Commodity Channel Index (CCI), works wonders on stocks, forex, crypto, and everything in between. It's a momentum oscillator that measures how far price has strayed from its statistical average, scaled so most readings fall between ±100. The magic? It catches overbought/oversold extremes, flags emerging trends, and often spots reversals or cyclical swings before price fully commits. Versatile, unbounded, and still a favorite for timing entries in trending or ranging markets.
Table of Contents
The Core Formula – Deviation Made Simple
Lambert's elegant equation:
CCI = \frac{\text{Typical Price} - \text{SMA}_n(\text{Typical Price})}{0.015 \times \text{Mean Deviation}}
- Typical Price (TP): (High + Low + Close) / 3
- SMAâ‚™: Simple Moving Average of TP over n periods (usually 20)
- Mean Deviation: Average absolute deviation of TP from the SMA
- 0.015: Lambert's constant – scales ~70–80% of readings within ±100
Result? An unbounded oscillator that spikes during strong moves and hovers near zero in chop.
Interpreting CCI Readings
Classic guidelines:
- Above +100: Overbought territory – strong bullish momentum (not always reversal!).
- Below –100: Oversold – powerful bearish momentum.
- Crossing +100 from below: Potential buy – momentum accelerating upward.
- Crossing –100 from above: Potential sell – downside gaining steam.
- Between ±100: Neutral/consolidation – waiting for breakout.
- Sustained extremes (>+200 or <–200): Very strong trend – ride it, don't fight it.
Unlike bounded oscillators, CCI can go wild (±300+) in parabolic moves.
Pro Trading Applications
Versatile setups:
- Trend entry: CCI breaks above +100 → long in uptrend; below –100 → short in downtrend.
- Mean reversion: Extreme reading + reversal candle → fade the move in ranges.
- Divergence power: Price higher high + CCI lower high → bearish reversal brewing.
- Zero-line filter: CCI crossing zero confirms momentum shift.
- Multi-timeframe: Higher-TF CCI >100 + lower-TF pullback → high-probability entry.
In strong trends, treat extremes as continuation signals – don't fade blindly.
Tuning and Pairings
Parameter tweaks:
- Short (10–14): Sensitive – great for intraday and volatile assets.
- Standard (20): Lambert's classic – balanced for most swings.
- Long (30–50): Smoother – filters noise on higher timeframes.
Best friends: Trend filters (MA/ADX), volume, RSI/MACD for divergence confirmation.
Strengths and Realistic Limitations
The Wins
- Excellent at spotting cyclical turns and emerging momentum.
- Unbounded – reflects true strength of extreme moves.
- Works across all assets and timeframes.
- Strong divergence and extreme-level signals.
The Gotchas
- False signals in choppy/sideways markets – whipsaws galore.
- Sensitive to noise – benefits from confirmation.
- No built-in direction – pair with trend tools.
Your CCI Launch Checklist
- Start with classic 20-period on Typical Price.
- Add trend context (price > 200-MA for longs).
- Require volume or candle confirmation on extremes.
- Watch divergences – often high-conviction setups.
- Use in multi-factor systems – rarely solo.
Key Takeaways
CCI measures price deviation from statistical mean – momentum with cyclical insight.
±100 levels flag extremes; sustained beyond = strong trends, reversals from = potential turns.
Great for trend entries, mean reversion, and divergence spotting.
Unbounded nature captures parabolic moves better than capped oscillators.
Filter heavily in ranges, confirm always – and CCI becomes a timing powerhouse. Stay deviated and trade sharp!
Related Terms
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