This oscillator is used with commodities and equities alike. Much like the RSI, the Commodity Channel Index assists a trader to determine whether a stock is overbought or oversold. Additionally, CCI can be used to predict a trend reversal. By using the price, the moving average of the price, and normal deviations from the moving average, the CCI can be calculated. The basic calculation for CCI is as follows:

CCI = Price – MA / 0.015 x D

The CCI compares price and simple moving average (SMA) and generally oscillates between (-100) and below and (+100) and above.

Generally if price levels exceed the simple moving average (SMA), the CCI oscillator is ascending near or above the +100 line. If price levels are under the moving average, the CCI will descend near or past the -100 line. Traders frequently use these calculations to determine if a stock is overbought or oversold. A stock is considered overbought when it reaches +100 or above and is considered oversold when it is at (-100) or below.

Some general rules to follow with the CCI oscillator.

• Buy long if the CCI is above +100
• Sell long if the CCI drops below +100
• Sell short if the CCI is below (-100)
• Buy to cover if the CCI trends up above (-100)

A trader’s goal is to determine the direction of a stock’s price, to enter a position with low risk and to exit a position with a profit. Using oscillators when prices are moving horizontally and not producing other traditional indicators, can provide a trader with good data on impending trend reversals. They can show whether a particular stock is overbought and therefore turning down, or oversold and moving up. Oscillators are widely used by the trading community today and serve as a standard to assist traders enter profitable positions.