Commodity Channel Index (CCI) Calculator

What is CCI?

The Commodity Channel Index (CCI) is a technical analysis indicator used to evaluate price fluctuations and identify overbought or oversold conditions in commodities, stocks, or other financial assets. It measures the difference between the current price and its statistical average, indicating the strength of price trends.

How CCI Works

When the CCI is above a certain threshold, it signals an overbought market, indicating potential price declines. Conversely, a low CCI suggests an oversold market, hinting at possible price increases. The CCI can also detect trend reversals and price divergences.

Formula Breakdown

The CCI formula is:

\[ \text{CCI} = \frac{\text{Typical Price} - \text{SMA}}{0.015 \times \text{Mean Deviation}} \]

Where:

• Typical Price = (High Price + Low Price + Closing Price) / 3
• SMA (Simple Moving Average) = Average of the recent n Typical Prices
• Mean Deviation = Average of the absolute differences between each Typical Price and the SMA

Example Calculation

Assume the following:

• High Price = $150
• Low Price = $140
• Closing Price = $145
• Period (n) = 20

First, compute the Typical Price: \[ \text{Typical Price} = \frac{150 + 140 + 145}{3} = 145 \]

Next, calculate the SMA and Mean Deviation for the last 20 Typical Prices. Finally, apply the CCI formula.

Use Cases and Significance

Traders and analysts use the CCI to spot market opportunities and refine their strategies. Understanding whether an asset is overbought or oversold helps in making timely investment decisions. The CCI is versatile and can be applied across various timeframes and asset classes.

Common FAQs

1. Is a higher CCI value better?

   • Not necessarily. A high CCI value indicates potential overbought conditions, which might precede a price drop.

2. How can I use CCI in trading?

   • CCI can be used to identify entry and exit points based on overbought/oversold signals or divergence from price trends.

3. What’s the typical period setting for CCI?

   • The default period is often set to 14 or 20, but it can be adjusted depending on trading strategies.

This calculator provides an easy way to determine the CCI, making it a valuable tool for traders and analysts in assessing market conditions.