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21. Feb
2012
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The Commodity Channel Index (CCI) measures the variation of a security's price from its statistical mean. High values show that prices are unusually high compared to average prices whereas low values indicate that prices are unusually low. Contrary to its name, the CCI can be used effectively on any type of security, not just commodities.
There are two basic methods of interpreting the CCI, First is looking for divergences & second one is as an overbought/oversold indicator. A divergence occurs when the security's prices are making new highs while the CCI is failing to surpass its previous highs. This classic divergence is usually followed by a correction in the security's price. Here is a chart of CCI.
