Commodity Channel Index (CCI)
The CCI measures how far the price moves away from its average, relative to the mean deviation: values above +100 or below −100 indicate unusual moves.
It was devised by Donald Lambert in 1980 for commodities, but today it's used for any instrument. It's usually calculated over 20 periods from the typical price, the average of high, low and close.
How it's calculated
Typical price = (high + low + close) / 3. CCI = (typical price − 20-period average of the typical price) / (0.015 × mean deviation). The mean deviation is the average of the absolute distances between the 20 typical prices and their average.
Worked example
The 20-period average of the typical price is €100, today's typical price is €106 and the mean deviation is €4: CCI = (106 − 100) / (0.015 × 4) = 6 / 0.06 = 100.
How to read it
Above +100 the stock is considered overbought (or in a strong push), below −100 oversold. A return inside the −100 to +100 range is often read as the end of the excess.
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