Commodity Channel Index or CCI Indicator
Commodity Channel Index (CCI) is one of the most popular momentum indicators used by traders to identify trend formation and ending, and/or overbought and oversold conditions. CII was originally developed by Donald Lambert in 1980 for commodity traders, but is now widely used by all traders trading all financial instruments. Commodity channel index is considered a better trading tool when used in conjunction with other indicators.
The basic idea behind Commodity Channel Index is that the market moves in a cyclic fashion with periodical ups and downs. The actual formula for calculating CCI is some what complex, the simplified one is,
CCI = (Current Price – Simple Moving Average) /0.015 x D.
Where D is the normal deviation OR Typical Price, which is calculated as
Typical Price = (High + Low + Close) /3
Commodity channel index is used as an oscillator having positive and negative values (the value 0.015 is used for this purpose).
With Commodity channel index overbought conditions are identified when CCI is above +100 and oversold conditions are identified when CCI is below -100. Beginning of an uptrend is identified when CCI crosses +100 line and beginning of a downtrend is identified with CCI crosses -100 line; the trend ends when CCI crosses back over the line. Buy signals are generated when CCI crosses +100 and the position is closed before or on reaching back +100. Similarly sell signals are generated when CCI crosses -100 and the position is closed before or on reaching back -100.
The basic idea behind Commodity Channel Index is that the market moves in a cyclic fashion with periodical ups and downs. The actual formula for calculating CCI is some what complex, the simplified one is,
CCI = (Current Price – Simple Moving Average) /0.015 x D.
Where D is the normal deviation OR Typical Price, which is calculated as
Typical Price = (High + Low + Close) /3
Commodity channel index is used as an oscillator having positive and negative values (the value 0.015 is used for this purpose).
With Commodity channel index overbought conditions are identified when CCI is above +100 and oversold conditions are identified when CCI is below -100. Beginning of an uptrend is identified when CCI crosses +100 line and beginning of a downtrend is identified with CCI crosses -100 line; the trend ends when CCI crosses back over the line. Buy signals are generated when CCI crosses +100 and the position is closed before or on reaching back +100. Similarly sell signals are generated when CCI crosses -100 and the position is closed before or on reaching back -100.
|
posted by Daniel Pipitone at
4:12 AM
0 Comments:
Post a Comment
Blog Home Archive List <<Previous - Next >>