The Commodity Channel Index (CCI) — misleadingly named, since it's used on stocks, indices, and anything else — is a momentum oscillator that measures how far price has deviated from its statistical average. Readings above +100 suggest strong upward momentum (or "overbought"); below -100, strong downward momentum (or "oversold").
How it works
CCI compares the current price to a moving average of price, scaled by the average deviation. When price is far above its recent mean, CCI spikes high; far below, it drops low. Unlike RSI or the stochastic, which are bounded 0-100, CCI is unbounded — it can run to +300 or -300 in a powerful move.
The unbounded trap
That unbounded scale is where traders err. Because CCI has no ceiling, a reading of +100 is not a "sell" — in a strong trend, CCI can pin well above +100 for a long time while price keeps rising. Treating +100 as an automatic reversal is the same overbought trap that catches RSI users, amplified by the open-ended scale.
+100 on the CCI isn't a sell signal. In a real trend, it's the trend just getting started.
Using it
CCI works best two ways: as a trend-strength gauge (sustained high readings confirm momentum) and for divergence (price makes a new high but CCI doesn't, hinting momentum is fading). In range-bound conditions its extremes can help fade; in trends they mislead. Regime first, reading second — one input, never a system.