rounded corner
rounded corner
top border

Indicator Help

Indicator Index
* Members Only

  1. Accumulation / Distribution
  2. Aroon Oscillator *
  3. Aroon Up/Down *
  4. Average Directional Index
  5. Average True Range
  6. Bollinger Bands
  7. Bollinger Band Width *
  8. Chaikin Money Flow Index *
  9. Chaikin Oscillator *
  10. Chaikin Volatility *
  11. Close Location Value *
  12. Commodity Channel Index
  13. Detrended Price Oscillator *
  14. Donchian Channel *
  15. Donchian Channel Width *
  16. Ease of Movement *
  17. Exponential Moving Average
  18. MACD
  19. Mass Index *
  20. Momentum
  21. Money Flow Index
  22. Negative Volume Index *
  23. On Balance Volume
  24. Pcnt Price Oscillator *
  25. Pcnt Volume Oscillator *
  26. Performance *
  27. Positive Volume Index *
  28. Price Envelope
  29. Price Volume Trend *
  30. Rate of Change
  31. Relative Strength Index
  32. Simple Moving Average
  33. Stochastic - Fast
  34. Stochastic - Slow
  35. Stochastic RSI *
  36. Standard Deviation *
  37. Triple Moving Average *
  38. TRIX *
  39. Ultimate Oscillator
  40. Volume
  41. Weighted Moving Average *
  42. Williams Percent R

Commodity Channel Index (CCI)

Not a member? Subscribe now!

Developed by Donald Lambert, the Commodity Channel Index (CCI) was designed to identify cyclical turns in commodities. The assumption behind the indicator is that commodities (or stocks or bonds) move in cycles, with highs and lows coming at periodic intervals. Lambert recommended using 1/3 of a complete cycle (low to low or high to high) as a time frame for the CCI. (Note: Determination of the cycle's length is independent of the CCI.) If the cycle runs 60 days (a low about every 60 days), then a 20-day CCI would be recommended. For the purpose of this example, a 20-day CCI is used.

For scaling purposes, Lambert set the constant at .015 to ensure that approximately 70 to 80 percent of CCI values would fall between -100 and +100. The CCI fluctuates above and below zero. The percentage of CCI values that fall between +100 and -100 will depend on the number of periods used. A shorter CCI will be more volatile with a smaller percentage of values between +100 and -100. Conversely, the more periods used to calculate the CCI, the higher the percentage of values between +100 and -100.

Lambert's trading guidelines for the CCI focused on movements above +100 and below -100 to generate buy and sell signals. Because about 70 to 80 percent of the CCI values are between +100 and -100, a buy or sell signal will be in force only 20 to 30 percent of the time. When the CCI moves above +100, a security is considered to be entering into a strong uptrend and a buy signal is given. The position should be closed when the CCI moves back below +100. When the CCI moves below -100, the security is considered to be in a strong downtrend and a sell signal is given. The position should be closed when the CCI moves back above -100.

Since Lambert's original guidelines, traders have also found the CCI valuable for identifying reversals. The CCI is a versatile indicator capable of producing a wide array of buy and sell signals.

  • CCI can be used to identify overbought and oversold levels. A security would be deemed oversold when the CCI dips below -100 and overbought when it exceeds +100. From oversold levels, a buy signal might be given when the CCI moves back above -100. From overbought levels, a sell signal might be given when the CCI moved back below +100.
  • As with most oscillators, divergences can also be applied to increase the robustness of signals. A positive divergence below -100 would increase the robustness of a signal based on a move back above -100. A negative divergence above +100 would increase the robustness of a signal based on a move back below +100.
  • Trend line breaks can be used to generate signals. Trend lines can be drawn connecting the peaks and troughs. From oversold levels, an advance above -100 and trend line breakout could be considered bullish. From overbought levels, a decline below +100 and a trend line break could be considered bearish.

Traders and investors use the CCI to help identify price reversals, price extremes and trend strength. As with most indicators, the CCI should be used in conjunction with other aspects of technical analysis. CCI fits into the momentum category of oscillators. In addition to momentum, volume indicators and the price chart may also influence a technical assessment.

Parameters:

  • Period (14) - the number of bars, or period, used to calculate the study.
  • Range (100) - the + / - range in which prices may fluctuate.
Computation

The proper calculation of the CCI requires several steps. They are listed in the proper sequence below. You must first compute the typical price, using the high, low and close for the interval. It is the simple arithmetic average of the three values.

The formula is:
1.  TP = (Hight + Lowt + Closet) / 3
  • TPt represents the typical price.
  • Hight is the highest price for this interval.
  • Lowt is the lowest price for this interval.
  • Closet is the closing price for this interval.
2.  Next, you calculate a simple moving average of the typical price for the number of periods specified.
TPAVGt = (TP1 + TP2 +... + TPn) / n
  • TPAVGt is the moving average of the typical price.
  • TPn is the typical price for the nth interval.
  • n is number of intervals for the average.
3.  The next step is rather complex; it computes the mean deviation. The formula is:
MDt = (|TP1 - TPAVG1| +... + | TPn - TPAVGn |) / n
  • MDT is the mean deviation for this interval.
  • TPn is the typical price for the nth interval.
  • TPAVGn is the moving average of the typical price for the nth interval.
  • n is number of intervals.

The symbol | | designates absolute value. In mathematical terms, negative differences are treated as positive values.

4.  Now, the computation for the final CCI value is:

CCIt = (TPt - TPAVGt) / (.015 * MDT)
  • CCIt is the Commodity Channel Index for the current period.
  • TPt is the typical price for the current period.
  • TPAVGt is the moving average of the typical price.
  • .015 is a constant.
  • MDT is the mean deviation for this period.

Published by Barchart
Home  •  Charts & Quotes  •  Commentary  •  Authors  •  Education  •  Broker Search  •  Trading Tools  •  Help  •  Contact  •  Advertise With Us  •  Commodities
Markets: Currencies  •   Energies  •   Financials  •   Grains  •   Indices  •   Meats  •   Metals  •   Softs

The information contained on InsideFutures.com is believed to be accurate but is not guaranteed. Market data is furnished on an exchange delayed basis by Barchart.com. Data transmission or omissions shall not be made the basis for any claim, demand or cause for action. No information on the site, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any futures or options contracts. InsideFutures.com is not a broker, nor does it have an affiliation with any broker.


Copyright ©2005-2018 InsideFutures.com, a Barchart.com product. All rights reserved.

About Us  •   Sitemap  •   Terms of Use  •   Privacy Policy