Relative Strength Index vs. Commodity Channel Index: What's the Difference?

Relative Strength Index vs. Commodity Channel Index: What's the Difference?

The relative strength index (RSI) and the commodity channel index (CCI) are two popular technical oscillators that serve as different spotting extreme price behavior methods. The RSI tracks the speed of price changes to watch for overbought and oversold conditions, while the CCI focuses on normal deviations from an asset's moving average price to spot divergences from normal trend cycles.

The Relative Strength Index (RSI)

The RSI compares the relationship between the average of up-closes versus the average of down-closes over specific time intervals, usually 14 days. Values produced by its formula are then plotted on a moving line underneath the price chart. All readings oscillate between zero and 100, with a midpoint of 50, allowing for easy readings about potential overbought (above 70) and oversold (below 30) levels.

The Commodity Channel Index (CCI)

Originally developed to spot cyclical trends in commodities, the CCI has become popular in equities and currencies as well. The CCI's formula compares an asset's typical price to its moving average and then divides those by the absolute value of its mean deviation from the typical price. High positive readings signal that the asset is trading more strongly than its past trend cycles predict that it should. Low negative readings suggest that it is trading weakly. Unlike the RSI, the CCI does not have specific range bounds, which can make it more difficult to read.

Special Considerations

Since both the RSI and CCI are momentum oscillators, they are able to signal bullish and bearish divergences. This occurs whenever new price peaks and valleys are not mirrored by corresponding momentum peaks and valleys. Such divergences highlight possible trend reversals. Generally speaking, the RSI is considered a more reliable tool than the CCI for most markets, and many traders prefer its relative simplicity.