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.
Other articles in this section
- Williams’ Percent Range (%R)
- Bulls/Bears Power
- Average True Range
- Monetary policy: impact on exchange rates
- Standard deviation
- Parabolic SAR
- Bollinger bands
- Moving averages
- Trend indicators
- Introduction to technical indicators
- Support and resistance
- Technical analysis
- Central Banks: policy and effects
- Fundamental factors
- Fundamental analysis
- Fundamental vs technical analysis