An oscillator used in technical analysis to help determine when an investment vehicle has been overbought and oversold. The Commodity Channel Index, first developed by Donald Lambert, quantifies the relationship between the asset’s price, a moving average (MA) of the asset’s price, and normal deviations (D) from that average. It is computed with the following formula:
CCI = (Price – MA) / (0.015 X D)
While the CCI will oscillate above and below the zero line, it is more of a momentum indicator, because there is no upward or downward limit on its value.
This particular indicator has seen substantial growth in popularity amongst technical investors; today’s traders often use the indicator to determine cyclical trends in not only commodities, but also equities and currencies. It can be a valuable tool to identify potential peaks and valleys in the asset’s price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of the asset.