The purpose of CCI indicator is to identify cyclical turnsin commodities. This indicator oscillates between an overbought and oversoldcondition and works best in a sideways market. The assumption behind theindicator is that commodities (or stocks or bonds) move in cycles, with highsand lows coming at periodic intervals.
The Commodity Channel Index (CCI) is a timing tool thatworks best with seasonal or cyclical contracts. It keeps trades neutral in asideways moving market, and helps get in the market when a breakout occurs.
The CCI is a versatile indicator capable of producing a widearray of buy and sell signals. CCI can be used to identify overbought andoversold levels. A security would be deemed oversold when the CCI dips below-100 and overbought when it exceeds +100. From oversold levels, a buy signalmight be given when the CCI moves back above -100. From overbought levels, asell signal might be given when the CCI moved back below +100.
CCI also help identify price reversals, price extremes andtrend strength. CCI fits into the momentum category of oscillators