Commodity Channel Index (CCI)

The Commodity Channel Index (CCI) is an oscillator originally introduced by Donald Lambert in an article published in the October 1980 issue of Commodities magazine (now known as Futures magazine).

Since its introduction, the indicator has grown in popularity and is now a very common tool for traders in identifying cyclical trends not only in commodities, but also equities and currencies. The CCI can be adjusted to the timeframe of the market traded on by changing the averaging period.

The Commodity Channel Index is often used for detecting divergences from price trends as an overbought/oversold indicator, and to draw patterns on it and trade according to those patterns. In this respect, it is similar to bollinger bands, but is presented as an indicator rather than as overbought/oversold levels.

The CCI typically oscillates above and below a zero line. Normal oscillations will occur within the range of +100 and -100. Readings above +100 imply an overbought condition, while readings below -100 imply an oversold condition. As with other overbought/oversold indicators, this means that there is a large probability that the price will correct to more representative levels.

Trading markets are tricky to trade. Despite the use of oscillators there will be an increased frequency of signals, both buys and sells. Many of the signals will be false and whipsaws

Indicators are almost useless in a trending market, they stay in the overbought area. If you see an uptrend, just get in.

Sideway markets are tricky to trade. Many of the signals will be false and whipsaws. Sideways trend is generally a result of the price traveling between strong levels of support and resistance.

Support and Resistance

Technical analysis is not an exact science, support and resistance levels are rarely exact, mostly zones. The tighter the range is the better.