Donald Lambert’s CCI compares current price with a moving average over a selected timeframe (usually 20 days). He normalizes the oscillator by using a divisor based on mean deviation. The indicator is based on the idea that commodities (or stocks or bonds) move in cycles, with highs and lows coming at periodic intervals. It uses moving averages to predict cycles.
The CCI fluctuates in a range from +100 to -100.
Markets with values over +100 are regarded as overbought and values of -100 are considered oversold.
Sell signals are generated when:
-The CCI crosses above 100 and has started to curve downwards.
-There is bearish divergence between the CCI and price, with the CCI going lower while the price of the asset continues to move higher.
Buy signals are generated when: -The CCI crosses below -100 and has started to curve upwards.
– There is divergence between the CCI and the actual price movement, with upward movement in the CCI while the price of the asset continues to move lower.