Commodity Channel Index (CCI)

The Commodity Channel Index (CCI) measures the variation of the current price from its statistical mean. The CCI is an oscillator centered around zero. By definition, the CCI equals zero when the price equals the MA - it is positive when the price is above the average and negative when price is below. The default has the calculation going through the opening which means the value is fixed and therefore is far more useful as being a predictive indicator.

Characteristics & Usage

The CCI is sensitive to the acceleration and deceleration of price moving away from its MA. The CCI will move to extreme readings as the distance between the current price and its average becomes larger compared to the recent average of this deviation.

Dividing the current price deviation by the mean deviation makes CCI sensitive to market volatility. As the mean deviation increases, the CCI will become less sensitive to price movement. Conversely, the CCI will be more sensitive during a quiet/stable market.

The 0.015 constant in the denominator is employed so that 85% of the data points will fall between +100 and -100. The levels of +200/-200 may be considered extremes. However, the CCI is not bounded by maximum/minimum values.

The CCI is an oscillator study. Accordingly, users often define OB/OS conditions to identify when the market has attained an extreme level. Selling an OB market or buying an OS market is effective in a trading range market but is likely to result in large losses during a trending market, as the CCI may remain OB/OS for an extended period. Traders may want to use an additional condition or set of conditions to confirm a trading signal.

Alternatively, traders use the CCI as a tool to identify breakouts, since the indicator tries to show when the market is accelerating out of its recent range.

CCI, like other oscillators, may be used to identify divergence or confirmation of a new price extreme. A divergence indicates the market has lost its momentum or has become highly volatile and is likely to consolidate or reverse. Confirmation indicates the market is still accelerating away from its moving average and follow through is likely.

Calculation

MA = Moving Average of Price

Mean Deviation = Average[AbsoluteValue(Price - MA)]

CCI = (Current Price - MA) / (0.015 * Mean Deviation)

Commodity Channel Index Parameters

Parameter	Description
Display	Opens sub-window to set parameters • Color = Line color. • Weight = Line thickness. • Display = Line style: line or histogram. • ShareScale = Determines whether sharing of the vertical scales between studies is accepted. Auto = System determine whether sharing is feasible. On = Scale is shared regardless of the functions and studies displayed. Off = Scale is not shared. ShareScale must be On if study is overlaid on a study with multiple outputs.
MarkIt	Opens Specify Conditions window.
Period	Number of bars in the lookback range.
Price	Price used to calculate study values.
OB/OS	Opens sub-window with overbought and oversold parameters: • Color = Select a color for the line. • Weight = Choose a thickness for the indicator. • Type = Choose fixed or dynamic. Fixed = uses Level as a fixed OB/OS value. Dynamic = uses Standard Deviation and Lookback for a dynamic OB/OS value:. OB: MA(@,Sim,lookback) + factor * STDDEV(@,lookback) OS: MA(@,Sim,lookback) - factor * STDDEV(@,lookback) where @ is the study • Std Dev = Multiplier used to calculate high and low. • Lookback = Number of bars to compare to the current bar. • Level = Percentage of average OB/OS used to calculate predictor Ob/OS levels. • Display = Click this check box to display the component. • Style = Choose a line style.