Momentum · Indicator
CCI measures how far price has strayed from its statistical mean, with readings beyond plus or minus 100 marking unusual excursions.
Overview
Donald Lambert's Commodity Channel Index measures how far price has deviated from its statistical mean over N periods. Readings above +100 may indicate an overbought condition and readings below -100 an oversold one. Despite the name it is applied to every asset class; Lambert developed it for commodity futures in the late 1970s but nothing in the formula is specific to commodities.
The calculation divides the distance from a moving average by the mean absolute deviation, scaled by a constant of 0.015. Lambert chose that constant so that roughly 70 to 80 per cent of readings would fall between -100 and +100, which is what gives those thresholds their meaning. They are a convention derived from a scaling choice, not a statistical boundary.
CCI uses mean absolute deviation rather than standard deviation, which makes it less sensitive to a single outlier bar than a standard-deviation measure such as Bollinger Bands. It is also unbounded, so unlike RSI or the stochastic it can keep rising indefinitely during a strong move, which is why it is used both as a mean-reversion tool and as a breakout tool depending on the trader.
How it is calculated
The typical price of each bar, the average of high, low and close, is averaged over the lookback. The mean absolute deviation is then computed as the average distance of each typical price from that average, which is a more robust measure of spread than squaring the differences.
The current typical price's distance from the average is divided by that deviation and by the 0.015 constant. Because mean absolute deviation is always smaller than standard deviation for the same data, the constant is what brings the resulting numbers onto a scale where 100 is a meaningful threshold.
Typical price = (high + low + close) / 3 SMATP = SMA(Typical price, N) Mean deviation = average of abs(Typical price - SMATP) over N periods CCI = (Typical price - SMATP) / (0.015 * Mean deviation)
Inputs
How to read it
The two conventional readings are opposites, and which one applies depends on the regime. In a range-bound market, a push beyond +100 or -100 marks a statistically unusual excursion that often reverts, so the levels are used as fade points. In a trending market, the same cross beyond +100 is read as the point at which a move has become strong enough to be worth following.
The zero line is the average itself, so CCI crossing zero means price has moved through its own N-period mean. Sustained readings on one side of zero describe a trend in the same way that RSI holding above 50 does.
Because CCI is unbounded, extreme readings such as +300 do occur and are far more meaningful than +110. Reading the current value against the range CCI has historically occupied on that instrument is more useful than treating 100 as a universal line.
Signals to look for
Moving through +100 or -100 marks an excursion outside the range where most readings fall. Mean-reversion traders fade it; trend traders treat it as a momentum entry, and which works depends on whether the market is ranging or trending.
CCI crossing back inside the +/-100 band after an excursion is the more conservative version of the signal, since it waits for the extreme to resolve rather than acting while it is still developing.
Price making a new extreme while CCI makes a less extreme reading says the latest move strayed less far from its own mean than the previous one, which describes a fading impulse.
Sustained readings above or below zero identify which side of its statistical mean the market has been trading on, which is used as a simple bias filter.
Limitations
Frequently asked questions
CCI measures how far price has strayed from its statistical mean, with readings beyond plus or minus 100 marking unusual excursions.
The two conventional readings are opposites, and which one applies depends on the regime. In a range-bound market, a push beyond +100 or -100 marks a statistically unusual excursion that often reverts, so the levels are used as fade points. In a trending market, the same cross beyond +100 is read as the point at which a move has become strong enough to be worth following.
Cross beyond plus or minus 100: Moving through +100 or -100 marks an excursion outside the range where most readings fall. Mean-reversion traders fade it; trend traders treat it as a momentum entry, and which works depends on whether the market is ranging or trending.
The +/-100 thresholds come from Lambert's choice of the 0.015 constant, not from a statistical property, and the proportion of readings falling inside them varies considerably by instrument and timeframe.
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