Commodity Channel Index (CCI)

Commodity Channel Index (CCI) was created by Donald Lambert. CCI corresponds to oscillators, measuring speed of price fluctuations. The indicator is based on an observation that the market moves in cyclical movements which means high and low of the price are coming in periodic intervals and in consecutive fashion. It is a great indicator of overbought and oversold markets.

Calculation:

1. Determine the typcial price (TP): TP = (HIGH + LOW + CLOSE)/3
2. Calculate the simple moving average of the typical price, where N is the period: SMATP = SMA(TP,N)
3. Based on the previous values the final calculation is: CCI = (TP – SMATP) / (.015 x Mean Deviation)

Use in FOREX:

• Overbought/Oversold: The market is oversold if the indicator goes above +100. The market is oversold if the indicator goes below -100
• Trend Line Break: Draw a trend line using the CCI data. The market will move in the direction of the breakout when you see the trend line breached.
• CCI Divergence: Negative divergence occurs when the CCI high does not keep pace with the market high

Example chart:

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Tags: Calculation, Lambert, Oscillators