{"id":35301,"date":"2019-07-02T19:10:54","date_gmt":"2019-07-02T09:10:54","guid":{"rendered":"https:\/\/www.icmarkets.com\/blog\/?p=35301"},"modified":"2019-12-03T17:40:55","modified_gmt":"2019-12-03T06:40:55","slug":"commodity-channel-index","status":"publish","type":"post","link":"https:\/\/www.icmarkets-vnk.com\/blog\/commodity-channel-index\/","title":{"rendered":"The Commodity Channel Index: The Basics"},"content":{"rendered":"

Defined in the October 1980 issue of Commodities magazine <\/em>(now known as Futures magazine<\/em>) by mathematician Donald Lambert, the Commodity Channel Index, or CCI, is a momentum oscillator \u2013 momentum measures the rate of change of a financial instrument.<\/p>\n

Since its inception, the indicator increased in popularity and is now a common tool for traders in financial markets. The original goal of Lambert’s CCI was to alleviate timing challenges in entering cyclical or seasonal commodity markets, though has since been adapted for use in other markets.<\/p>\n

The indicator\u2019s primary use within the field of technical analysis is identifying overbought and oversold phases. The CCI takes the change in price and compares that to its average change in price, consequently creating positive and negative values that oscillate above and below a zero Line. Generally, a value of +100 echoes an overbought reading, whereas -100 suggests oversold conditions. In spite of this, it\u2019s important to note overbought and oversold thresholds vary depending on the financial instrument\u2019s volatility.<\/p>\n

Figure 1.1 shows the EUR\/JPY M30 chart with the CCI indicator applied:<\/p>\n

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(Figure 1.1)<\/p>\n

CCI calculation<\/strong><\/h2>\n

Technological developments have made CCI calculation automatic on the majority of trading platforms, far removed from the days of having to perform the calculation manually.<\/p>\n

While most will rely on the platform\u2019s calculating capabilities, it\u2019s always beneficial to have some idea of the data that goes into the calculation.<\/p>\n

In general, the CCI measures the current price level relative to an average price level over a given period of time. The indicator registers a high value upon price action trading beyond its average, and a low value in response to the unit trading below the average.<\/p>\n

The calculation:<\/u><\/strong><\/p>\n

CCI = (Typical Price – (20-period SMA of Typical Price) \/ (.015 * MD).<\/p>\n

Where:<\/p>\n