Commodity Channel Index (CCI) Indicator
- 19th August 2025
- 12:00:00 AM
- 6 min read
While analysing a particular security in intraday trading, technical indicators might sound intimidating. One of them is the Commodity Channel Index (CCI). From understanding trend reversal to trading opportunities, CCI is well-known for identifying trends.
This technical indicator was created by Donald Lambert in 1980 to spot cycles in a commodity market.
This blog explains what is commodity channel index, its calculation, interpretation, and the purpose of using it in simple language.
What Does Commodity Channel Index (CCI) Mean?
The Commodity Channel Index is a momentum oscillator to identify extreme market conditions or new trends. After its creation, traders use this indicator in different markets like indices, equities, options, and futures.
The CCI measures current price levels relative to average price levels in a given period. A relatively high CCI indicates that the current trading price is above the average price. Contrarily, a low CCI means the current price is far below the average price.
This indicator is highly useful to understand price direction and trends. Investors can determine entry and exit positions, or avoid a position with this technical indicator.
Interpretation of the Commodity Channel Index (CCI) Indicator
The Commodity Channel Index indicator helps you identify overbought or oversold signals. This gives signs of upcoming bullish or bearish divergence. The indicator oscillates around a 0 line, ranging from -100 to +100. Its value can also go beyond these ranges since it is an unbound indicator.
Let us have a look at 2 different situations to interpret the CCI indicator:
- An upswing of the CCI indicator from a negative value to above 100 indicates the beginning of a new uptrend. In addition, low movement and a high value may indicate a downside reversal.
- If the CCI value drops below 100, it may indicate the beginning of a downtrend. However, values below 100 can also mean oversold conditions. This signals a potential upside reversal.
How Can You Calculate the Commodity Channel Index (CCI)?
Since you understand the commodity channel index meaning, understanding its calculation process can also be easy for you. The formula for calculating CCI is given below:
Commodity Channel Index = (Typical Price – Simple Moving Average) / (0.015 × Mean Deviation)
Typical price (TP) = (High + Low + Close) / 3
A simple moving average (SMA) can be calculated over a certain period, which is normally 20 years.
Mean deviation is the average of the difference between the SMA and the TP over the same time, which is:
(TP – SMA) / number of periods
Now, let us use an example to understand the calculator procedure based on the formula.
Assume that today is day 11, and we are calculating for 10 days.
High Price = INR 95
Low Price = INR 90
Closing Price = INR 93
SMA Period = 10 days
- TP CalculationTP = (High Price + Low Price + Closing Price) / 3
TP = INR (95 + 90 +93)/3 = INR 92.66 - Hypothetically assume that the SMA was INR 88, which must be calculated over the previous 20 years.
- Hypothetically assume that the mean deviation was INR 2, which must be calculated over the previous 20 years.
- Calculation of CCI
CCI = (92.66-88) / (0.015 × 2)
CCI = 4.66 / 0.03 = 155.33
Hence, the CCI of the security is approximately 155.33, which is more than +100. This indicates a strong uptrend or an overbought situation.
If you download the PL Capital Group – Prabhudas Lilladher application, you will get a brief knowledge of technical indicators for free.
Purpose of Using the Commodity Channel Index
There are different uses of the commodity channel index, some of which are highlighted below:
-
Identification of New Trend
The large movements of CCI oscillators signal the strengths and weaknesses in the market. This indicates a significant price swing.
-
Tracking Overbought Condition
If CCI goes above 100+, it indicates overpurchase of an asset. This shows a possibility that the asset price may fall, since a high CCI value has an increased likelihood of downside reversal.
-
Tracking Oversold Condition
If the CCI of an asset goes below -100, it indicates an oversold condition. This indicates the asset price might increase. A low CCI value has the likelihood of a price increase.
-
Identifying Bullish and Bearish Divergences
CCI value might indicate a possible bullish divergence if it does not do the same when an asset price is making new lows. Contrarily, if the price of the asset is making new highs but the CCI does not do the same, it may indicate a bearish divergence. These divergences are confirmed when the CCI value crosses a particular threshold.
Benefits of the Commodity Channel Index
Along with the trend identification and tracking of overbought or oversold conditions, the commodity channel index also has some other benefits. These are:
-
Versatality
You can use the CCI indicator across multiple timeframes and markets.
-
Multiple Trading Strategies
To improve the accuracy of a trade, traders often combine the CCI indicator with support/resistance, volume analysis, or moving averages.
-
Algorithmic trading
Since the CCI has a simple calculation formula, you can simply integrate it with automated trading systems.
Final Thought
The commodity channel index, or CCI, is a technical analysis tool which helps traders identify overbought or oversold signals, new trends, and divergencies in assets. Although it is effective in trending markets, you must confirm the signals with other technical indicators.
Download the PL Capital application for more intraday trading activities and to gain knowledge about the key technical indicators. You can also access various securities if you open a Demat account for free with PL.
Frequently Asked Questions
1. How effectively does the CCI indicator spot potential divergence?
A commodity channel index indicator can effectively spot potential divergences, but its accuracy depends on the market conditions. It also indicates a warning signal for investors if a potential divergence occurs.
2. What does the CCI rate refer to?
A commodity channel index rate is a technical indicator which helps to evaluate the momentum of a financial instrument.
3. What is the right timeframe for using the Commodity Channel Index?
The commodity channel index indicator can be used across different timeframes, since it is a versatile indicator.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
