Commodity Channel Index
4.5.1 << Trend technical indicators
(Commodity Channel Index, CCI)
Technical Indicator Commodity Channel Index (Commodity Channel Index, CCI) measures the deviation of price from its statistical mean. High index values indicate that the price is unusually high compared with average and low - that is too low. Despite the name, Commodity Channel Index is applicable to any financial instrument, not just commodities.
There are two basic ways to use the Commodity Channel Index:
-To find discrepancies
A divergence occurs when price reaches new high, and Commodity Channel Index is failing to surpass its previous highs. This classical divergence is normally followed by the price correction.
-As an indicator of overbought / oversold
Commodity Channel Index usually varies in the range of ± 100. Values above 100 indicate an overbought condition (and the probability of correcting decay), while values below 100 - an oversold condition (and the probability of correcting increase).
Calculation
Find the typical price. You need to add the high, low and closing price of each bar and then divide by 3.
TP = (HIGH + LOW + CLOSE) / 3
Calculate the n-period simple moving average of typical prices.
SMA (TP, N) = SUM (TP, N) / N
To subtract the received SMA (TP, N) of the typical price TP of each of the preceding n periods.
D = TP - SMA (TP, N)
Calculate the n-period simple moving average of the absolute values of D
SMA (D, N) = SUM (D, N) / N
Multiply the received SMA (D, N) by 0,015
M = SMA (D, N) * 0,015
Section M to D
CCI = M / D
Where:
HIGH - the highest price of the bar;
LOW - the lowest price of the bar;
CLOSE - close price;
SMA - Simple Moving Average;
SUM - sum;
N - number of periods used in the calculation.
