Commodity Channel Index

The Commodity Channel Index (CCI) is a technical indicator used to measure the strength and direction of a price trend. Despite its name, the CCI is not just for commodities—it is widely used in Forex, and other financial markets. The indicator compares an asset’s current price to its average price over a set period, helping traders identify overbought or oversold conditions. When the CCI value is high, it suggests that prices are above their historical average, indicating strong upward momentum. Conversely, a low CCI value suggests prices are below their average, signaling potential downward pressure.

The CCI is typically plotted on a chart with values that move above and below zero. A reading above +100 suggests that the asset is overbought and may be due for a reversal or pullback, while a reading below -100 indicates that the asset is oversold and could be due for a price increase. Traders use these signals to identify possible entry and exit points in the market. However, just because an asset is overbought or oversold does not mean it will immediately reverse—other factors like trend strength and market conditions should be considered.

This indicator can be useful for spotting trend reversals and momentum shifts. Some traders also use CCI divergence, where price moves in the opposite direction of the CCI, as a sign that a trend change may be coming. Like any technical tool, the CCI works best when combined with other indicators, such as moving averages or volume analysis, to confirm trade signals and reduce false alarms.

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