Commodity Channel Index (CCI)
Definition
CCI measures how far a stock’s price has moved from its statistical average. Unlike RSI, CCI has no fixed upper or lower bound — it can go well above +100 or below -100. It was originally designed for commodities but works the same way with stocks. The default period is 20.
Formula
CCI = (Typical Price - Simple Moving Average of Typical Price)
/ (0.015 x Mean Deviation)
Typical Price = (High + Low + Close) / 3How to Interpret It
Readings above +100 mean the price is well above its recent average, which may signal the start of a strong uptrend or an overbought condition. Readings below -100 mean the price is well below its average, possibly signaling a downtrend or oversold condition.
The 0 line is also worth watching. CCI crossing from negative to positive means the stock has moved from below-average to above-average relative to its recent history. The indicator tends to spend most of its time between -100 and +100, so moves beyond those levels stand out.
Typical Strategy
One approach is to buy when CCI crosses above +100 (confirming momentum strength) and sell when it drops back below +100. The logic is that the move above +100 represents a breakout from normal conditions, and you stay in as long as that unusual strength persists.
The mean-reversion approach works in the opposite direction: buy when CCI drops below -100 and look for it to climb back toward zero. This assumes that extreme deviations from the average are temporary.