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Technical Indicators

Thu, Jun 5th, 2025
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The descriptions, formulas, and parameters shown below apply to both Interactive Charts and Snapshot Charts, unless noted. Please note that some of the parameters may be slightly different between the two versions of charts.
Studies noted with * are available only in Snapshot Charts and those noted with ^ are available only in Interactive Charts.
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Commodity Channel Index

Indicator Type: Stand-alone

Developed by Donald Lambert, the Commodity Channel Index (CCI) was designed to identify cyclical turns in commodities. The assumption behind the indicator is that commodities (or stocks or bonds) move in cycles, with highs and lows coming at periodic intervals. Lambert recommended using 1/3 of a complete cycle (low to low or high to high) as a time frame for the CCI. (Note: Determination of the cycle's length is independent of the CCI.) If the cycle runs 60 days (a low about every 60 days), then a 20-day CCI would be recommended. For the purpose of this example, a 20-day CCI is used.

For scaling purposes, Lambert set the constant at .015 to ensure that approximately 70 to 80 percent of CCI values would fall between -100 and +100. The CCI fluctuates above and below zero. The percentage of CCI values that fall between +100 and -100 will depend on the number of periods used. A shorter CCI will be more volatile with a smaller percentage of values between +100 and -100. Conversely, the more periods used to calculate the CCI, the higher the percentage of values between +100 and -100.

Lambert's trading guidelines for the CCI focused on movements above +100 and below -100 to generate buy and sell signals. Because about 70 to 80 percent of the CCI values are between +100 and -100, a buy or sell signal will be in force only 20 to 30 percent of the time. When the CCI moves above +100, a security is considered to be entering into a strong uptrend and a buy signal is given. The position should be closed when the CCI moves back below +100. When the CCI moves below -100, the security is considered to be in a strong downtrend and a sell signal is given. The position should be closed when the CCI moves back above -100.

Since Lambert's original guidelines, traders have also found the CCI valuable for identifying reversals. The CCI is a versatile indicator capable of producing a wide array of buy and sell signals.

  • CCI can be used to identify overbought and oversold levels. A security would be deemed oversold when the CCI dips below -100 and overbought when it exceeds +100. From oversold levels, a buy signal might be given when the CCI moves back above -100. From overbought levels, a sell signal might be given when the CCI moved back below +100.
  • As with most oscillators, divergences can also be applied to increase the robustness of signals. A positive divergence below -100 would increase the robustness of a signal based on a move back above -100. A negative divergence above +100 would increase the robustness of a signal based on a move back below +100.
  • Trend line breaks can be used to generate signals. Trend lines can be drawn connecting the peaks and troughs. From oversold levels, an advance above -100 and trend line breakout could be considered bullish. From overbought levels, a decline below +100 and a trend line break could be considered bearish.

Traders and investors use the CCI to help identify price reversals, price extremes and trend strength. As with most indicators, the CCI should be used in conjunction with other aspects of technical analysis. CCI fits into the momentum category of oscillators. In addition to momentum, volume indicators and the price chart may also influence a technical assessment.

Sample Chart:

Commodity Channel Index

Parameters:

  • Period (20): the number of bars, or period, used to calculate the study.
  • Overbought/Oversold Range (100): the + / - range in which prices may fluctuate.
  • Center: Draws a center horizontal line at zero (0)
Computation

The proper calculation of the CCI requires several steps. They are listed in the proper sequence below. You must first compute the typical price, using the high, low and close for the interval. It is the simple arithmetic average of the three values.

The formula is:
1. TP = (Hight + Lowt + Closet) / 3
  • TPt represents the typical price.
  • Hight is the highest price for this interval.
  • Lowt is the lowest price for this interval.
  • Closet is the closing price for this interval.
2. Next, you calculate a simple moving average of the typical price for the number of periods specified.
TPAVGt = (TP1 + TP2 +... + TPn) / n
  • TPAVGt is the moving average of the typical price.
  • TPn is the typical price for the nth interval.
  • n is number of intervals for the average.
3. The next step is rather complex; it computes the mean deviation. The formula is:
MDt = (|TP1 - TPAVG1| +... + | TPn - TPAVGn |) / n
  • MDT is the mean deviation for this interval.
  • TPn is the typical price for the nth interval.
  • TPAVGn is the moving average of the typical price for the nth interval.
  • n is number of intervals.

The symbol | | designates absolute value. In mathematical terms, negative differences are treated as positive values.

4. Now, the computation for the final CCI value is:

CCIt = (TPt - TPAVGt) / (.015 * MDT)
  • CCIt is the Commodity Channel Index for the current period.
  • TPt is the typical price for the current period.
  • TPAVGt is the moving average of the typical price.
  • .015 is a constant.
  • MDT is the mean deviation for this period.
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