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Commodity Channel Index
by Suniiel A Mangwani
The Commodity Channel Index (CCI) developed by Donald Lambert, is an indicator designed to identify cyclical turns in currencies or commodities. It is a momentum indicator that determines how far the current price has been from the recent average.
In its basic use, the CCI can be used in 2 ways -
Lambert's trading guidelines for the CCI focused on movements above +100 and below -100 to generate buy and sell signals. Because about 70 to 80 percent of the CCI values are between +100 and -100, a buy or sell signal will be in force only 20 to 30 percent of the time. When the CCI moves above +100, a market is considered to be entering into a strong uptrend and a buy signal is given. The position should be closed when the CCI moves back below +100. When the CCI moves below -100, the security is considered to be in a strong downtrend and a sell signal is given. The position should be closed when the CCI moves back above -100.
Most charting software's include the CCI, as a single line oscillating around the centre zero line.
Besides looking for divergences, and overbought/oversold values, I use the CCI (with a setting of 14 periods) to derive signals in 2 different ways -
Notes on attached charts
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