CCI (Commodity Channel Index)

CCI (Commodity Channel Index)

CCI indicator is widely used to predict price reversals. It quantifies the relationship between the asset’s price, a moving average (MA) of the asset’s price, and normal deviations from that average.

How to interpret

1. Overbought/oversold conditions. In a normal case, CCI is fluctuating in the ±100 range. Rise above +100 means the pair is overbought and signals a downward correction. A decline below -100 means the pair is oversold and signals an upward correction.

Indicator’s dynamics depends on the number of periods that were used to form it. A shorter (with a less number of periods) indicator will be more volatile, so more points will be out the ±100 range, and vice versa with the bigger number of periods, more points will be within the ±100 range.

2. Divergence/Convergence. Divergence occurs when price forms a higher maximum but CCI forms a lower one. It can be confirmed by a break of CCI below zero or a break of support on the price chart. Conversely, convergence occurs when the price forms a lower low but CCI forms a higher low. It can be confirmed by a CCI break above zero or a break of resistance on the price chart.

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