The Commodity Channel Index (CCI) indicator indicates the variation of a security's price from its statistical mean. The underlying assumption of the CCI is that securities behave in a cyclical pattern. High CCI values indicate that the security's price is high in relation to its statistical mean. Low CCI values indicate that the security's price is low in relation to its statistical mean. Although the CCI was originally developed for commodity trading, it is effectively applied by traders on any type of security.

The CCI typically oscillates between -100 and +100. The original developer of the CCI indicator (Donald Lanbert, 1980), suggested a constant of 0.015 so that 70%-80% of the CCI values are distributed between -100 and +100. When a stock’s price crosses above the +100 benchmark for 2 days in a row, it indicates that the security is in an upward trend and a BUY signal is initiated. When a stock’s price crosses below the -100 benchmark, it indicates that the security is in a downward trend and a SELL signal is initiated.

Calculation:

Where:

• (n days) = number of periods for calculation
• Typical Price = (High + Low + Close) / 3
• Mean Deviation = an average of the absolute value of the difference between the last period's Simple Moving Average of the Typical Price and the Typical Price for each of the past n periods

To see a CCI calculation in Excel, click here: Attach:CCI.xls