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
The Commodity Channel Index
("CCI") measures the variation of a securitys 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
Step 7. Divide the value in Step 6 by the value in Step