Commodity Channel Index

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Learn Financial Analysis Series – Commodity Channel Index Oscillator
By []Chris Blanchet

One oscillator that is always worth mentioning to people learning technical analysis is the Commodity Channel Index, or CCI. Although the name uses the word “commodity” it is used well when evaluating equity prices.

What is the CCI

When learning technical analysis for the first time, it become rather apparent that oscillators, like the CCI, often reley on a comparison of the security price against another benchmark. In the case of the CCI, that benchmark is the Moving Average. However, unlike other oscillators, the CCI is a percentage that fluctuates between 100 and -100 (sometimes, these numbers can be exceeded).

How to Calculate the CCI

Calculating the CCI is slightly more difficult than other oscillators. When learning technical analysis, it is usually wise to trust software programs or other services to identify CCI and the signal it produces. However, to calculate the CCI of a security, simply take its price and subtract the moving average, then divide this number by 0.015 multiplied by the mean of absolute deviations from the average. Again, given the level of complexity, it makes more sense to rely on software or services to perform such a calculation.

How the CCI Works

As noted before, the CCI provides a range between 100 and -100. It stands to reason that as the security price rises above the moving average, the CCI will rise toward or above the 100 line. Alternately, if it drops below the moving average, it will head toward the -100 line.

This means that when a price rises above the 100 line, it is a bullish indicator; when it falls below the -100 line it is a bearish indicator. More likely for people learning technical analysis, however, the CCI should provide an indication to price trend reversals.

Finding Reversals Using the CCI

The end of a bullish rally and the arrival of an imminent price reversal is said to have occurred when the CCI drops back below the 100 line. Likewise, the end of a bearish rally and the imminence of a reversal is said to have arrived when the CCI climbs back above -100. When using the CCI in such a way, the investor is using it as a way to identify overbought and oversold conditions.


Buying long when the CCI rises above 100 (or selling when it falls below -100) is not uncommon. For investor learning technical analysis, however owning the actual shares (long or short) is strongly recommended until a true comfort zone materializes with this oscillator.

Chris Blanchet has more than 16 years of experience in the financial services in industry as a Financial Advisor. For more information about []trading and investments visit Online Trader where Chris provides Technical Analysis and Options-based contributions. The wesbite also provides Free Stock Trade Alerts to subscribers, which are based on the technical analysis discussed here and on the site. As a Financial Services Professional, Chris maintains a []debt-free blog at How To Repay

Article Source: [—Commodity-Channel-Index-Oscillator&id=2609677] Learn Financial Analysis Series – Commodity Channel Index Oscillator


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