commodity channel index(CCI

Commodity channel index was developed by Donald Lambert.
commodity channel index indicator measures the deviation of a commodity price from its average statistical price.
When the value of the commodity channel index is high,that is an indication  that the price is also high while when the value of the commodity channel index is low that is an indication that the price is also low.
commodity channel index is calculated using the following steps;

-Finding the typical price by adding the high,the low and the close price of each bar and then divide the whole result by 3.This is as follows;
TP=(HIGH+LOW+CLOSE)/3

-calculating the n-period SIMPLE MOVING AVERAGE of typical price.This is as follows;
SMA(TP,N)=SUM(TP,N)/N

-Subtraction SMA(TP,N) from typical prices of each of preceding n-periods.This is as follows;
D= TP-SMA(TP,N)

-Calculating the n-period SIMPLE MOVING AVERAGE of absolute D values.This is as follows;
SMA(D,N)=SUM(D,N)/N

-Multiplying the received SMA(D,N) by 0.015.This is as follows;
M=SMA(D,N)*0.015

-commodity channel index(CCI) is then gotten by dividing M by D.This is as follows;

CCI= M/D
Where as;

HIGH is maximum bar price

LOW is minimum bar price

CLOSE is close price

SMA is Simple Moving Average

N is number of periods used for calculation while;

SUM is the sum.



commodity channel index has an oscillation at point 0 where the CCI oscillate above or below.When the CCI curve is above +100(positive 100 ) that is an indication that there is an overbought in the market while when the CCI curve is below -100(negative 100) that is an indication that there is an oversold in the market.At overbought market which is above 100,the CCI curve will signal the trader to close any buy position and open a sell position since the market will start moving downwards while at oversold market which is below -100,the CCI curve will signal the trader to close any sell position and open a buy position since the market will start moving upwards.This is indicated as from the candle stick chart below;



From the candle stick chart above,the commodity  channel index curve is indicated by the two red joining arrows.The oscillation point 0 is indicated by the first red arrow.There is two points,point A and point B.At point A the CCI is below -100 thus an indication of oversold market thus signaling the trader to close any sell position and enter a buy position since the market has started moving upwards as indicated.At point B the CCI is above 100 thus an indication of overbought market thus signaling the trader to close any buy position and enter a sell position since the market has started moving downwards.

Recommendation:if you are a day trader just use 1 min,5 min,15 min and 30 min time frame while if you are a swing trader just use 1 hour and above time frame if you want commodity channel index indicator to work well for you.



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