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Commodity Channel Index (CCI)

 

Commodity Channel Index CCI Purpose


Commodity Channel Index CCI is a flexible indicator developed by Donald Lambert and featured in Commodities magazine in 1980. Despite the original purpose to identify new trends, nowadays CCI is extensively used to measure and evaluate the current price levels in relation to the average one. Daniel Lambert formerly developed CCI to make out repeated turns in commodities, but the indicator can successfully be used to indices, ETFs, stocks and other securities. Generally, Commodity Channel Index (CCI) measures the current price level relative to a standard price level over a given period of time.

Commodity Channel Index can be used to find out overbought and oversold areas of price action. CCI is comparatively high when prices are far above their average. CCI is relatively low when prices are far below their average.



Commodity Channel Index CCI Usage


Commodity Channel Index (CCI) is a very popular indicator that gives easy to use buy and sells signals. The CCI is calculated so that approximately 75% of price movement should be between +100 (overbought) and -100 (oversold). Some analysts believe a buy signal occurs when CCI moves above -100 and a sell signal occurs when CCI moves below +100.
There are significant values and the crossing directions which need to be looked at closely:

  • Exceeding past the 100 level suggests a possible growing movement
  • Exceeding past the -100 level indicates a U-turn and serves as a signal to buy.
  • Decreasing past the 100 level indicates a U-turn and serves as a signal to sell.
  • Decreasing past the -100 level suggests a possible descending movement
  • Crossing the naught line upwards from below serves as a confirmation to buy
  • Crossing the naught line downwards from above serves a confirmation to sell.



Commodity Channel Index CCI Calculation

  1. To find a Typical Price. You need to add the HIGH, the LOW, and the CLOSE prices of each bar and then divide the result by 3.
    TP = (HIGH + LOW +CLOSE)/3

  2. To calculate the n-period Simple Moving Average of typical prices.
    SMA(TP, N) = SUM[TP, N]/N

  3. To subtract the received SMA (TP, N) from Typical Prices.
    D = TP — SMA(TP, N)

  4. To calculate the n-period Simple Moving Average of absolute D values.
    SMA(D, N) = SUM[D, N]/N

  5. To multiply the received SMA (D, N) by 0,015. M = SMA(D, N) * 0,015

  6. To divide M by D
    CCI = M/D

Where:
HIGH – bar high;
LOW – bar low;
CLOSE – close price;
SMA – simple moving average;
SUM – total amount;
N – the number of periods used for the calculation.

 

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