What it means
CCI (Commodity Channel Index) measures price deviation from its statistical average. Formula: (typical_price - SMA) / (0.015 × Mean_Deviation), where typical_price = (high + low + close) / 3. Default 20-period. Scaled with center at zero; >100 = strong upward deviation, <-100 = strong downward. Created by Donald Lambert in 1980, originally for commodity trading.
Why it matters
CCI complements RSI and stochastic by measuring deviation from average rather than absolute price level. CCI tends to identify trend strength more accurately than overbought/oversold indicators alone. CCI moves above +100 confirm uptrend strength; sustained above +200 = very strong trend.
How to use it
Use as trend-strength filter. CCI > 100 confirms uptrend; entries on CCI > 0 pullback retests (CCI returning to 0 from positive territory often precedes trend continuation). Bearish divergence (price higher high, CCI lower high) signals trend exhaustion.
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