Commodity Channel Index

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The Commodity Channel Index (CCI) is an oscillator originally introduced by Donald Lambert in an article published in the October 1980 issue of Commodities magazine (now known as Futures magazine).

Since its introduction, the indicator has grown in popularity and is now a very common tool for traders in identifying cyclical trends not only in commodities, but also equities and currencies. The CCI can be adjusted to the time frame of the market traded on by changing the averaging period.

Calculation

The CCI is calculated as the difference between the typical price of a commodity and its simple moving average, divided by the mean absolute deviation of the typical price. The index is usually scaled by an inverse factor of 0.015 to provide more readable numbers:

where the pt is the   SMA is the simple moving average, and σ is the mean absolute deviation.

For scaling purposes, Lambert set the constant at 0.015 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.

If you would like to know more, please download or read online our e-book under the Education menu.

Thank you for your interest.

QEForex Team