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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 n-period SMA of the "typical" prices. For each of the prior n-periods, subtract today's "typical" value from the "typical" value n days ago. Calculate an n-period SMA of the absolute values of each of the results. Multiply this by 0.015. Subtract the n-period SMA of the "typical" value from the "typical" value. Divide this by the pre-SMA results. |
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