Commodity Channel Index
Type
Trend indicator
Short introduction
The Commodity Channel Index (CCI) was developed by Donald Lambert. With this indicator, he wanted to determine the beginning and end of commodity cycles.
Statement
The CCI calculates a value that measures the distance to the MA. Starting from a certain distance, Lambert assumes a new trend, that is, the indicator provides a signal.
Formula/calculation
The calculation of the indicator is complex because it is carried out in several steps. In the first step, a so-called typical price curve is established. For this the highest, lowest and last price is added and then divided by 3. A MA is then calculated on the basis of these typical prices. In the third step, the standard deviation typical price / MA is calculated. The last step determines the actual CCI. The indicator fluctuates around the zero line, but is not limited up and down.
Xt = (H + L + C) ÷ 3
MAXt = (Xt + Xt-1 + Xt-2 + ... + Xt-n+1) ÷ n
sXt = (abs(Xt - MAXt) + abs(Xt-1 - MAXt) + ... + abs(Xt-n+1 - MAXt)) ÷ n
CCI = (Xt - MAXt) ÷ (0,015 × sXt)
where:
X = Significant price
MAX = Moving average of X
sX = Standard deviation of X
abs = absolute value
The following MA variants can be used for smoothing via the parameters:
- Simple MA (SMA) - Default setting
- Exponential MA (EMA)
- Weighted MA (WMA)
Interpretation
In contrast to many other trend followers and trend intensity indicators, the zero line itself has no significance for this indicator. According to Lambert, two further lines are generally entered at 100 and -100. If the indicator moves between the two lines, Lambert speaks of a trendless market because the distance between the price and the MA is too small according to the CCI definition to detect a trend.
A buy signal is given when the indicator breaks through the 100 line from the bottom to the top. This position must be sold (closed out) when the indicator falls below the 100 line again.
Default setting
- Normal application: 20 weeks
- Extremely short analysis: 20 days
- Smoothing: MA
Example: Chart with CCI
