CCI on graphs - what am I looking at?

shadeed

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Looking at some of the graphs on here and on other sites there is a graph at the bottom of some called the CCI - what is this, what does it signify and should I be taking heed of it or ignoring it (or both!)
 
Commodity Channel Index

The CCI is the difference between the mean price of a commodity and the average of the means over the time period chosen.

This is then contrasted with the average difference over the time period and multiplied by a constant to fit it into a +/-100 range.

Although originally designed for commodities it works as well (or as badly!) with stocks.

You can use it to spot divergences (underlying making new high/low - CCI failing to surpass previous high/low) or as an overbought/oversold indicator (anything outside the 'normal' range of +/-100).

Should you use it? If it helps in your trading system, yes, of course.
 
The effectiveness of using CCI also depends on what type of trading day we are having as well, ie trending or oscillating. It should not be used in isolation and is just one of many confirmation type signals.


Paul
 
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