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Commodity channel index
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Commodity channel index
The commodity channel index (CCI) is an oscillator indicator that is used by traders and investors to help identify price reversals, price extremes and trend strength when using technical analysis to analyse financial markets.
It was originally introduced by Donald Lambert in 1980.
Since its introduction, the indicator has grown in popularity and has become a very common tool for traders to identify cyclical trends not only in commodities but also equities and currencies. The CCI can be adjusted to the timeframe of the market traded on by changing the averaging period.
CCI measures a security's variation from the statistical mean.
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 pt is the , SMA is the simple moving average, and MD 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.
Traders and investors use the commodity channel index 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. It is often used for detecting divergences from price trends as an overbought/oversold indicator, and to draw patterns on it and trade according to those patterns. In this respect, it is similar to bollinger bands, but is presented as an indicator rather than as overbought/oversold levels.
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Commodity channel index
The commodity channel index (CCI) is an oscillator indicator that is used by traders and investors to help identify price reversals, price extremes and trend strength when using technical analysis to analyse financial markets.
It was originally introduced by Donald Lambert in 1980.
Since its introduction, the indicator has grown in popularity and has become a very common tool for traders to identify cyclical trends not only in commodities but also equities and currencies. The CCI can be adjusted to the timeframe of the market traded on by changing the averaging period.
CCI measures a security's variation from the statistical mean.
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 pt is the , SMA is the simple moving average, and MD 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.
Traders and investors use the commodity channel index 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. It is often used for detecting divergences from price trends as an overbought/oversold indicator, and to draw patterns on it and trade according to those patterns. In this respect, it is similar to bollinger bands, but is presented as an indicator rather than as overbought/oversold levels.