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Commodity Channel Index
The Commodity Channel Index (CCI) is an oscillator originally introduced
by Donald Lambert in an article published in the October 1980 issue of
Commodities magazine (now known as Futures magazine).
Since its introduction, the indicator has grown in popularity and is now a
very common tool for traders in identifying cyclical trends not only in
commodities, but also equities and currencies. The CCI can be adjusted to
the timeframe of the market traded on by changing the averaging period.
Calculation
The CCI
is calculated as the difference between the typical price of a commodity
and its simple moving average, divided by the mean deviation of the
typical price. The index is usually scaled by a factor of 1/0.015 to
provide more readable numbers:
There
are 4 steps involved in the calculation of the CCI:

Calculate the last period's Typical Price (TP) = (H+L+C)/3 where H = high,
L = low, and C = close.

Calculate the 20period Simple Moving Average of the Typical Price (SMATP).

Calculate the Mean Deviation. First, calculate the absolute value of the
difference between the last period's SMATP and the typical price for each
of the past 20 periods. Add all of these absolute values together and
divide by 20 to find the Mean Deviation.

The
final step is to apply the Typical Price (TP), the Simple Moving Average
of the Typical Price (SMATP), the Mean Deviation and a Constant (.015) to
the following formula:
CCI = ( Typical Price  SMATP ) / ( .015 X Mean
Deviation )
Interpretation
The Commodity Channel Index is often used for detecting divergences from
price trends as an overbought/oversold indicator, and to draw patterns on
it and trade according to those patterns. In this respect, it is similar
to bollinger bands, but is presented as an indicator rather than as
overbought/oversold levels.
The CCI typically oscillates above and below a zero line. Normal
oscillations will occur within the range of +100 and 100. Readings above
+100 imply an overbought condition, while readings below 100 imply an
oversold condition. As with other overbought/oversold indicators, this
means that there is a large probability that the price will correct to
more representative levels.
How
to use CCI
Buy or
sell signals happen 20  30 % of the time while from 70 up to 80 % of time
Commodity Channel Index's value is fluctuating between +100 and 100. It's
supposed that if CCI overcomes the level of +100 from below upwards, it
means that the currency pair is moving in the direction of the strong
ascending trend, thus there is a clear purchase signal. And once CCI goes
under +100 the position is supposed to be closed on a return signal. At
the same time, it's considered that if Commodity Channel Index moves to
100 point from top to down, it means that the currency pair is meeting a
strong descending trend, and there's a sale signal. As soon as CCI again
crosses the level of 100 this position is considered closed.
One can
treat break of trend lines formed on the indicator as input or output
signals from a position. At overbought  above +100  the break of the
trend line downwards is supposed a sale signal and at an oversold level 
below100  the break of the trend line upwards is supposed a signal to
growth of the market. Thus these lines are also based on the connection of
consecutive maxima or minima.
