A CCI indicator is another name for the commodity channel index. This oscillator was originally introduced at the time Futures magazine (used to be called Commodities) published an article by Donald Lambert about the CCI indicator in October 1980. Having moved on from those times the CCI indicator has since increased in how popular it has become and it is now quite normal for a lot of dealers to use it to help to identify trending cycles in currencies, stocks and commodities. By changing the period over which averaging is done, the CCI indicator is changed to reflect the market's time period.
CCI Indicator - what does it measure?
The CCI indicator will assess how much a stock can vary from the statistical mean. By measuring the gap from the typical price and simple moving average of a stock, this can be calculated. To take this further, we then divide this by the typical price's mean absolute deviation. So that the majority of the CCI Indicator values will fall into the -100 to +100 range Lambert set a constant of 0.015. It will then oscillate higher and lower than zero. The proportion of the CCI indicators within the +100 to -100 range will be decided by the number of periods used. The smaller the period the more volatile the CCI indicators and less in number will be within the +100 to -100 range. Likewise, use a larger time frame for calculating the CCI indicator and there will be a larger ratio of values that are within the +100 to - 100 range.Both general investors and traders will use the CCI indicator to search for price reversals in addition to the strength of trends and price extremes.Like a lot of these instruments, the CCI indicator can be combined with more analysis tools. As an oscillator indicator of momentum, it fits into one of the categories that can affect a technical assessment along with volume indicators and price charts.
The CCI indicator is not dissimilar to Bollinger Bands in that it can be used for spotting any deviations away from a price trend, working as an indicator of oversold or overbought situations. The more usual fluctuations of the CCI indicator will happen within the scope of the -100 to +100 and will usually vary above and below a line at zero.
Overbought values are ones that are higher than +100 and oversold values are less that -100. In keeping with alternative indicators of this type, when an oversold or overbought situation occurs, it's likely that price will adjust itself in time.
Increasingly, investors are finding CCI indicators attractive. Traders will use these to guide their trending cycles for commodities, stocks and currencies.
By adapting CCI indicators to work with other instruments, they can form a helpful tool to pick out the likely peaks and dips of a price that may then offer a solid foundation for making further forecasts about how prices might move. The CCI indicator has the bulk of its values in the 70 to 80 percent range of the +100 to -100 area and as such only 20 to 30 percent alert to a buy or sell. It follows that once the CCI indicators goes in excess of +100, a stock can be said to be moving into a trend that is strong and upward and a signal is made to buy.
But once this returns to underneath +100, this situation should be shut. Likewise, with the CCI indicator under -100, a stock will be trending downwards with strength and a sell signal emerges.
The CCI indicator is very flexible and can help in spotting price reverses.
The CCI indicator is now a popular tool with technical investors,no doubt due to the ability to reveal trends in equities, commodities and currencies.
Mixing it with oscillators, the instrument can locate the high and low points of a price and possibly forecast how they might change in future.