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Indicators

The CCI:how far price is from its average.

CCI stands for commodity channel index, an oscillator introduced by Donald Lambert in 1980. It measures how far the typical price is from its moving average, scaled by the average deviation so most readings fall between +100 and -100. Readings beyond those levels are read as unusually strong moves. Despite the name, it is used on any market.

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How the CCI is calculated

Take the typical price, (high + low + close) / 3. Subtract its simple moving average over the chosen period - 20 is a common default - and divide by the mean absolute deviation of the typical price over the same period. Lambert multiplied the deviation by 0.015 so that roughly 70 to 80 percent of readings would fall between +100 and -100.

How it is read

Traders use the same readings in two opposite ways, which is why context matters.

Common CCI readings
ReadingTrend readingReversion reading
Above +100Strong upward move under wayStretched; may revert
Below -100Strong downward move under wayStretched; may revert
Crossing zeroPrice moving above or below its average-

CCI and divergence

Like other oscillators, the CCI is used to look for divergence - price making a new extreme that the indicator does not confirm. The same caution applies: divergence can persist through a strong trend.

Step by step

How to identify it

Fix the settings and the reading before using it.

  1. Choose the period - 20 is common - and keep it fixed.
  2. Decide whether you read extremes as trend strength or as stretched moves.
  3. Check whether the market is trending or ranging before applying that reading.
  4. Use a separate entry rule and a stop.

Worked example

The concept,walked through

A CCI reading in a trend, described

An illustrative sequence in words, with round numbers standing in for price and the indicator. It is not taken from any real instrument or date.

  1. 1. BreakPrice rallies sharply and the CCI rises from 20 to 150.
  2. 2. TrendIt stays above +100 for several bars as price keeps rising.
  3. 3. FadeThe CCI falls back below +100 while price is still near its high.

A reversion trader who sold at 150 was early; a trend trader who bought at 100 caught the move. The same reading supported both ideas, and hindsight decided which was right.

Common mistakes

Where tradersgo wrong

Treating +100 as overbought by rule

In a strong trend the CCI can stay above +100 for a long time.

Changing the period to fit the chart

An indicator tuned to each chart describes the past, not a method.

Using it alone

It restates price; traders pair it with structure and risk rules.

Limitations

What it cannottell you

No chart concept predicts price. These are the limits worth keeping in view.

  • The CCI is derived from price and lags it.
  • There is no reliable evidence that CCI readings alone predict direction.

In an evaluation

Using it on asimulated account

Oscillator-based entries against a trend tend to fail repeatedly before one works. On a $100,000 account, with a daily loss limit of $3,000 on Instant or $5,000 on 1 Step and 2 Step, limit the number of attempts as well as the risk on each.

Trading rule

What is the daily loss limit?

The ceiling on a day's losses - 3% on Instant and 5% on 1 Step and 2 Step.

Trading rule

What is maximum drawdown?

The overall floor beneath the account.

Trading rule

Can I scalp?

Short-term trading is allowed, with a 2 minutes minimum hold.

Questions

Asked aboutthis concept

Commodity channel index. It measures how far the typical price is from its moving average, relative to its average deviation.

They mark unusually large moves away from the average. Traders read readings beyond them either as trend strength or as stretched moves that may revert.

Keep learning

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Sources

What this pagerelied on

  1. Commodity channel index - Wikipedia. Retrieved 23 September 2026. Lambert's 1980 introduction of the CCI, its formula and the 0.015 scaling factor.

Educational content only, not investment advice or a recommendation to trade. Chart concepts describe what price has done; none of them predicts what it will do, and trading any strategy can lose money. Get Funded Now accounts are simulated and trade virtual funds. Last reviewed 22 September 2026.

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