Commodity Channel Index

The Commodity Channel Index (or CCI) is a price momentum indicator developed by Donald R. Lambert. The CCI can be used on any type of asset, not just stocks.

Calculation Method

where:

• CM: Daily Typical Price, i.e. (close + high + low) / 3
• SMA_CM: Moving Average over the period of the Typical Price CM
• DM: Moving average over the period of the absolute value of the difference between the Typical Price CM and its Moving Average SMA_CM.

Example

Interpretation

There are two ways to interpret the CCI:

1. Consider the CCI as an overbought/oversold indicator:
   The CCI generally fluctuates between -100 and +100; when it exceeds these bounds, it implies an overbought or oversold condition.
2. Look for divergences:
   When the price reaches a new high while the CCI fails to exceed its previous peaks.