Commodity Channel Index | Indicator Series

Trading real, durable goods, also known as commodities, can be a risk. Their value can change based on a number of factors outside of market control, such as their condition, complexity of acquisition, transport costs, or environmental factors. 

Given their volatility, how do investors, brokers, and other financial professionals go about tracking and predicting price trends for the commodities being traded throughout various world markets? 

They use a tool called the commodity channel Index. 

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What is the Commodity Channel Index? 

The commodity channel index (CCI) is a type of financial analyst’s tool known as an oscillator. An oscillator is a statistical method that examines trends between two values. In mathematical terms, that is a value above and below a zero line. The oscillator measures where a financial instrument performs in relation to those outlying values. The commodity channel Index in specific is a type of oscillator used to measure three different aspects of commodity performance. Those aspects are:   

  • If a commodity is overbought or oversold. 
  • The direction of the commodity’s price trend 
  • The strength of the commodity 

How the Commodity Channel Index Works 

The terms overbought and oversold are important terms when discussing commodities. If a commodity is overbought, that means that it’s trading above its base value. Brokers are paying more than what it is usually worth. Therefore, a commodity that is oversold is trading at less than its basic value.  Access the economic calendar for your trading strategies to see upcoming news events on Tradingview.

The CCI measures this relationship by analysing the historical performance of a commodity versus its current performance in order to establish a baseline. Once that zero line is established, the oscillator measures ongoing performance. Values that fall above or below predetermined markers (based on each individual commodity) indicate when a product is overbought or oversold. Therefore, if a value were to exceed this predetermined number, like 100 for example, it would be overbought. If it exceeded -100, it would be oversold.  

Tracking these values over time can also help brokers determine pricing trends and the relative strength of the commodity’s performance. Look at the historical prices of several stocks and trading assets on tradingview’s charts

Using the Commodity Channel Index to Your Advantage 

Smart investors use CCI to spot emerging market trends. Because it helps to identify when a commodity is overbought or oversold, the CCI can help you gauge the strength of your commodity and plot a more reliable investment course using the data it provides.  

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