The Commodity Channel Index (CCI) is a very common oscillator that can be used to determine a new trend, as well to recognize extreme conditions. Despite its name, the indicator can be used in any market.
Originally, the oscillator was invented to detect long-term trend changes. However, it has been adapted for use on all time frames. Basically, the CCI compares current price to average price over specific period. Donald Lambert, the creator of the index, recommended to use the average price over 20 periods.
It is suggested that the price is above the historic average when the oscillator is above zero. When the CCI value is below zero, the price is below the average. The indicator value equal or above 100 shows that strong upside trend exists. When the CCI is below negative 100, it means that trend is strong to the downside.
When the CCI value shifts from negative or near-zero to positive it indicates that a bullish trend could emerge. When the indicator decreases from positive to negative or near-zero it suggests that a bearish trend could appear.
Despite wide use the CCI oscillator might not be always accurate, as the real market conditions may not always line up with the mathematical background. Also, the indicator might create false signals due to rough market conditions.
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