In technical analysis, the Commodity Channel Index (CCI) measures the difference between current and historical average prices. It helps to identify overbought and oversold levels by measuring an instrument’s variations away from its statistical mean. A CCI can also be used to determine reversals, divergences, and overbought/oversold levels. It was originally designed to identify commodity trends but is now used for various financial instruments. Donald Lambert created and introduced CCI in 1980, the first publication about which was in Commodities Magazine.
The CCI above zero indicates that the price has risen above the historical average. Similarly, the price is below average when the CCI is below zero.
Practice: calculate the CCI yourself
CCI = (Typical Price – 20 Period SMA of TP) / (.015 x Mean Deviation)
Typical Price (TP) = (High + Low + Close)/3
Constant = .015
- Decide how many periods your CCI will analyze. Most people use twenty. The indicator will be more volatile with fewer periods while smoother with more periods. Let’s assume 20 periods, but you can still take a different number.
- Calculate the typical price by tracking the high, low, and close for 20 periods.
- Sum up the last 20 typical prices and divide them by 20 to calculate the moving average (MA) of the typical price.
- Divide the MA by the average price over the last 20 periods to calculate the mean deviation. Sum these figures’ absolute values (ignore minus signs) and then divide by 20.
- Using the most recent typical price, the MA, and the mean deviation, compute the current CCI.
- As each new period ends, repeat the process.
Standard parameters are: CCI(20)
The standard configuration uses an SMA with a period of 20.
How to display CCI in Sema?
To see the Commodity Channel Index on a chart, press on the hexagon icon in the right corner of a coin chart. Choose CCI to display the Commodity Channel Index on your chart. You can switch between candles and line format right above.