CTI (Commodity Trading Index)

The Commodity Trading Index (CTI) is a momentum oscillator that measures the deviation of price from its moving average, helping traders identify overbought and oversold conditions. Developed by Donald Lambert, it compares the current price to a moving average to determine market momentum and potential reversal points.

Formula

CTI = (Price - MA) / (0.015 × Mean Deviation)
Where:
MA = n-period Moving Average
Mean Deviation = Average of absolute differences between price and MA
n = typically 14 periods

How CTI Works

The CTI oscillates around zero, with readings above +100 indicating overbought conditions and readings below -100 indicating oversold conditions. The indicator helps identify potential price reversals when it reaches extreme levels. The CTI's sensitivity to price movements makes it particularly useful for short-term trading decisions and momentum analysis.

Trading Strategies Using CTI

Strategy Examples

Enter long positions when CTI crosses above -100
Enter short positions when CTI crosses below +100
Use zero-line crossovers for trend confirmation
Look for divergences between price and CTI
Combine with other momentum indicators for confirmation

Support and Resistance Strategy

Use CTI levels as dynamic support/resistance zones
Look for price reactions at extreme CTI values
Monitor CTI convergence with key price levels
Use CTI crossovers near support/resistance for confirmation
Combine with volume analysis at key levels

Trend Identification

Consistently positive CTI indicates strong uptrend
Consistently negative CTI indicates strong downtrend
CTI crossing zero line suggests potential trend change
Higher CTI peaks show increasing bullish momentum
Lower CTI troughs show increasing bearish momentum

Advantages and Limitations

Advantages

Clear overbought/oversold signals
Effective at identifying momentum shifts
Helps confirm trend strength
Works well across different timeframes
Good for identifying potential reversals

Limitations

Can generate false signals in choppy markets
May lag behind price action
Requires confirmation from other indicators
Less effective in ranging markets
Sensitivity to period selection

Best Practices When Using CTI

Combine CTI signals with other technical indicators for confirmation
Use multiple timeframes to validate momentum trends
Wait for clear overbought/oversold signals rather than minor fluctuations
Consider overall market context when interpreting CTI signals
Monitor volume alongside CTI for stronger confirmation of moves
Look for divergences between price and CTI for potential reversals
Use CTI zero-line crossovers to confirm trend changes
Be cautious of signals during ranging or choppy markets
Set appropriate stop-loss levels based on CTI and price action
Regularly review and adjust CTI settings based on market conditions