Commodity Channel Index (CCI) is an indicator develop by Donald Lambert. CCI is use to identify new trend and warn an extreme price. CCI is high when the price is far above the average price. CCI is low when the price is far below the average price. Just like RSI indicator, it can also be use to measure overbought and oversell.
How to use CCI to identify new trend? Most of the activity in CCI happen between -100 and +100. When the CCI go beyond +100, its indicate strength and signal emerging new uptrend in the future. When the CCI go below -100, its indicate weakness and foreshadow an extended downtrend in the near future. It is also can be use as bullish bearish divergences that signal a potential reversal pointHow to calculate CCI
CCI = (Typical Price - 20-period SMA of TP) / (.015 x Mean Deviation)
Typical Price (TP) = (High + Low + Close)/3
Constant = .015
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