Commodity Channel Index (CCI)

Use the Commodity Channel Index (CCI) in Quantower to identify cyclical trends and overbought or oversold market conditions

Description

The Commodity Channel Index​ (CCI) is a momentum-based technical indicator first time introduced by Donald Lambert in 1980, the most often user case is identifying market cycles, reaching a condition of being overbought or oversold. From a technical perspective, CCI measures the change in an instrument's price relative to a pre-defined moving average (MA) of the price divided by 1.5% of a normal deviation (D) from that average.

Formula

CCI = (Price - MA)/0.015*STD

Where: Price - current close price MA - selected N-period moving average STD - Standart deviation of price

Most useful cases

• Indication of overbought/oversold levels - The most useful case of the commodity channel index is an identifying of price reversals; an instrument 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 moves back below +100.

• Divergence/Convergence - Divergence/Convergence pattern is a form of price action when new high(low) of the price not confirmed with a new high/low of CCI. Such price and indicator’s behavior can be interpreted as the weakness of current existing trend.