CCI in gold trading

CCI (Commodity Channel Index) was designed by Donald Lambert for commodities. It compares the typical price, (high + low + close) ÷ 3, with its moving average and divides by the mean deviation multiplied by a constant of 0.015, so that most readings fall between -100 and +100. The default period is 20 (some platforms use 14).

How it applies to gold trading

CCI is used in two opposite ways. Trend traders treat a move above +100 as the start of strong upward momentum and a move below -100 as strong downward momentum, entering in that direction. Mean-reversion traders treat extreme readings, such as above +200 or below -200, as stretched and look for a return toward the average.

On gold, CCI also shows divergence well: a new price high with a lower CCI high warns that momentum is fading. Because CCI is unbounded, there is no fixed overbought level; extremes vary with volatility.

Worked example

Example (hypothetical numbers): on the 1-hour chart gold breaks out of a range at 4,015 and CCI(20) rises from 40 to 140. A momentum trader buys at 4,017 with a stop at 4,007. Hours later gold makes a new high at 4,045 but CCI peaks at only 90, a bearish divergence that prompts a partial close.

A common mistake

Treating every +100 reading as overbought. On trending gold days, CCI can stay above +100 for long periods.

See also: RSI, Overbought and oversold, Divergence, Stochastic oscillator.

Frequently asked questions