Developed by Donald Lambert,
the Commodity Channel Index (CCI) is the variation between
the price of a stock and the statistical mean. Obviously, a high
CCI means prices are probably too high compared to average prices
and vice versa. When a stock's price makes new highs but the CCI
is failing to surpass previous highs, what usually follows is that
price corrects to come back within the statistical range. Used as
an oscillatorm ratings over 100 mean overbought, and under 100
mean oversold. In a day trading strategy, the CCI may have some
merit, although th ereversals it picks out require a trader to go
against the herd. The calculation is complex, and we recommend you
study the work of the author, although essentially the steps involved
include: add each period's high, low, and close and divide this
sum by 3 to get the "typical" price. Next, calculate an nperiod
SMA of the "typical" prices. For each of the prior nperiods, subtract
today's "typical" value from the "typical" value n days ago. Calculate
an nperiod SMA of the absolute values of each of the results. Multiply
this by 0.015. Subtract the nperiod SMA of the "typical" value
from the "typical" value. Divide this by the preSMA results.
previous
next


