RSI vs CCI
The relative strength index is bounded between nought and one hundred, so a reading means the same thing on any instrument. The commodity channel index has no fixed limits, so its familiar thresholds are conventions rather than boundaries the reading cannot pass.
Two oscillators, both read for extremes, both usually described the same way. One of them has a ceiling and a floor and the other does not, which changes what every threshold on it means.
What each one is
The relative strength index compares recent gains with recent losses, producing a reading that cannot leave the range from nought to one hundred. The relative strength index covers it.
The commodity channel index measures how far price sits from its own average, scaled by typical deviation, with no fixed upper or lower limit. The commodity channel index covers the calculation.
Both are read for the same things — extremes, crossings and divergence — which is why the difference in their scales gets overlooked.
Where they differ
Whether the reading has limits. One cannot exceed its bounds. The other can print any value, so a number that looks extreme this month may be ordinary next month.
What a threshold means. On the bounded tool a threshold is a fraction of a fixed range. On the unbounded one it is a convention somebody chose, and the reading passes it routinely in strong moves.
Whether readings compare between markets. A bounded value means the same shape of thing anywhere. An unbounded one depends on how much the instrument typically deviates, so cross-market comparisons fail.
What each is measuring. One-sidedness of recent bars against distance from a mean. Those are different questions, even though both are usually summarized as momentum.
Where they agree
Both are functions of the same price series. Neither adds information from outside it, so agreement between them is arithmetic rather than evidence.
Both lag. Each is computed from bars that have already closed, and neither can turn before price does.
Both fail in a range. When a market goes sideways its swings last only a few bars, and short runs push the relative strength index and the commodity channel index back and forth across any threshold repeatedly.
And neither contains a stop. Neither reading knows where the trade idea stops working, and an ordinary wide bar can carry price well past any level chosen from an oscillator. The invalidation belongs at structure rather than at a level on an oscillator.
Which one to use: RSI or CCI?
Run the relative strength index when you want comparability. A bounded reading behaves the same way on every instrument, which makes a threshold something you can carry between markets.
Run the commodity channel index when distance from the mean is your question. How far price has traveled from its own average is a genuine measurement, and the unbounded scale is honest about it.
Run the unbounded one when you want extension rather than exhaustion. A reading that keeps climbing is telling you the move is stretching further, which the capped tool physically cannot express.
And run one, not both. They read the same bars, so having both on a chart is one observation presented twice with different axes.
Why the open scale matters
Because a threshold on it is not a boundary. The familiar levels are conventions, and treating one as a limit means fading a reading that has no reason to stop.
And because the scale moves with the instrument. A value that is unusual on one market is routine on another, so a rule carried between them silently changes meaning.
What to settle before using either
Decide what an extreme means to you. Exhaustion or strength — they lead to opposite trades, and the indicator itself has no opinion about which reading is correct.
Pick thresholds from your own instrument. On the unbounded tool especially, the conventional levels were chosen elsewhere and may be crossed several times a week on your market.
Count how often the rule fires. Markets turn briefly far more often than they turn for good, so any threshold rule on either oscillator triggers far more often than the trend actually changes. The count over a few hundred bars of your own chart is the number that matters.
And leave the length alone once chosen. Both tools have one number that controls everything, and adjusting it after a losing run produces a fresh set of signals and no accumulated evidence about either.
The original data
The commodity channel index appears in 67 titles at a median of 13,187 across 45 channels, and the relative strength index in 594 at a median of 5,377.
67 videos on the unbounded tool at 13,187 against 594 on the bounded one at 5,377. A ninth of the coverage and nearly two and a half times the audience per video — a strong interest signal for a subject usually treated as the secondary one of the pair.
The answer to the question on that chart is that the threshold is not a ceiling. An unbounded reading has nothing stopping it from going further — so past the conventional level is a statement about how far price has traveled, not about it being due to stop.
How the videos on each are made
Measured on the same set of videos, RSI and CCI run to nearly the same length, with medians of 8.9 and 9.6 minutes. By title wording, 57% of RSI videos are lessons (how to, tutorial, explained and the like), next to 73% of CCI videos. CCI therefore reads mostly as a lesson topic, while RSI is more often discussed, reviewed or argued about than taught step by step. 77% of the RSI videos have not reached 50,000 views; the CCI figure is 75%. 7 titles bring the two together, with median views of 38,433.
When it fails
The failure is treating a conventional threshold on the unbounded tool as a limit, and a strong move punishes it for weeks. The reading passes the level, which is presented everywhere as extreme, so a fade is taken. The move continues and the reading extends further, which looks like an even stronger case for the same trade. It is not — the scale has no ceiling, and a rising reading is simply reporting that price has moved further from its average. The position is added to as the number grows, which is the same as adding to a loser because it is losing faster.
The second failure is carrying thresholds between instruments. The scale differs.
A third is running both for confirmation. They read the same bars.
A fourth is reading either as a reversal signal. Both describe recent bars.
A fifth is tuning the length after losses. That is fitting.
And a sixth is expecting either to lead price. Both are computed after the close.
Related
The relative strength index covers the bounded oscillator. The commodity channel index covers the unbounded one. And stochastic covers the third bounded oscillator these two are usually shown with.
The bounded-versus-unbounded distinction sounds academic and it is the practical difference. A capped reading tells you where you are on a fixed scale. An uncapped one tells you a number whose meaning depends on the instrument and the period, which is a much harder thing to act on.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.