Commodity Channel Index ("CCI")

 

The CCI is a timing system that is best applied to commodity contracts which have cyclical or seasonal tendencies. CCI does not determine the length of cycles - it is designed to detect when such cycles begin and end through the use of a statistical analysis which incorporates a moving average and a divisor reflecting both the possible and actual trading ranges. Although developed primarily for commodities, the CCI could conceivably be used to analyze stocks as well.

The Commodity Channel Index ("CCI") measures the variation of a security’s price from its statistical mean. High values show that prices are unusually high compared to average prices whereas low values indicate that prices are unusually low.

The calculation of this is somewhat complicated but these are the steps

Step 1. Add each period's high, low, and close and divide this sum by 3. This is the typical price.

Step 2. Calculate an n-period simple moving average of the typical prices computed in Step 1.

Step 3. For each of the prior n-periods, subtract today's Step 2 value from Step 1's value n days ago. For example, if you were calculating a 5-day CCI, you would perform five subtractions using today's Step 2 value.

Step 4. Calculate an n-period simple moving average of the absolute values of each of the results in Step 3.

Step 5. Multiply the value in Step 4 by 0.015.

Step 6. Subtract the value from Step 2 from the value in Step1.

Step 7. Divide the value in Step 6 by the value in Step 5.