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Commodity Channel Index (CCI)

Technical Indicators

Commodity Channel Index (CCI)

The Commodity Channel Index (CCI), developed by Donald Lambert, is an indicator that follows trends. In general, the CCI measures the gap to a Moving Average, helping detect the beginning and the end of market trends. The CCI is calculated as the difference between the mean price of a share and the average price of the mean prices over a specified period. The result is then compared with the average difference over the period.

The formula for the CCI is:

Commodity Channel Index

 

The CCI is a lower technical study. ProSticks uses a default parameter value of 5 bars to calculate the CCI. 14 and 20 bars are also commonly used.

Values between +100 and -100 indicate a sideways market. Bullishness is confirmed when the index crosses +100 while dipping below -100 indicates bearishness in the market.

Traders usually go long when the price rises above +100 and will enter into a short position when the price dips below +100. Covering will occur if the price rises above +100 once more. Conversely, traders will go short when the price falls below -100 and will enter into a long position when the price rises above -100. Covering will occur if the price dips below -100 once more.