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Today we are describing or explaining the Oscillator - COMMODITY CHANNEL INDEX (CCI)
The Commodity Channel Index (CCI) functions as a momentum oscillator within technical analysis, primarily serving to pinpoint overbought and oversold levels by quantifying deviations of an instrument from its statistical mean. CCI enjoys widespread recognition and usage due to its adaptability. Beyond identifying overbought and oversold conditions, CCI is a tool for identifying reversals and divergences. Originally designed for tracking commodity trends, it has now found application across a spectrum of financial instruments.
The Commodity Channel Index calculates a security's price change relative to its average price change, resulting in positive and negative values that fluctuate above and below a Zero Line. Typically, an overbought condition is signaled at 100, while an oversold condition registers at -100. However, it's crucial to note a few key considerations.
The specific overbought and oversold thresholds can vary based on the financial instrument traded. For instance, a more volatile instrument might have thresholds set at 200 and -200. While overbought and oversold conditions are often viewed as precursors to price reversals, when utilizing CCI, these conditions can indicate strength, suggesting the current trend may be gaining momentum and persisting.