Commodity Channel Index

The CCI (Commodity Channel Index) is an oscillator created by Donald R. Lambert in order to identify the cyclical changes on the commodities market. The basic hypothesis of the CCI is that commodities move cyclically, with formation of maximums and minimums at periodic intervals. Practically this oscillator is also used on stocks and bonds and more generally on all the markets that present strong cyclicality. The construction of the Commodity Channel Index starts from the calculation of the “Typical Price” and its “Simple Moving Average” to 20 periods. Lambert recommends using a third of the cycle duration as the period for calculating the CCI, so if the cycle lasts 60 periods then a 20-period CCI will be used. The average deviation is then calculated and the CCI indicator is constructed as the ratio between the difference of the typical price with its moving average and the average deviation multiplied by a constant at 0.015. The constant 0.015 introduced by Lambert allows the oscillator to have values ​​that are in the majority (70-80%) of the cases between +100 and -100. The CCI is therefore used as a real oscillator, highlighting overbought situations when it is above +100 and oversold situations when it is below -100. In addition, the Commodity Channel Index provides signals of divergence from prices and these are all the more strong when they occur most in excess positions of the indicator.