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# Commodity Channel Index (CCI)

The Commodity Channel Index indicator gives you the difference between the present price and the historical average price. It shows you the strength and direction of the price trend. You can use this oscillator to decide whether you want to enter a trade at that point in time or wait.

The Commodity Channel Index (CCI) oscillator shows you when buying or selling may have reached its peak for that period. Based on what you notice, you may refrain from entering a trade. You could also add to a position that you’re already holding.

When the CCI indicator is above zero, it means that the price is above the historic average. Similarly, when it’s below zero, it means the price is below the historic average. This oscillator is unbounded, so it will keep bouncing back and forth indefinitely. You can only know if the commodity is overbought by looking at historical levels where price reversals took place.

While this oscillator can provide buy and sell signals, it only does so under certain conditions. You should use it with other indicators to be more certain of any move you want to make.

## Calculating Commodity Channel Index Indicator

In the calculations below, the following symbols are used:

1. N = the number of periods
2. SMA = Simple Moving Average
3. Typical Price= TP

Formulas

To find the Typical Price, you’ll have to add the HIGH, LOW, and CLOSE prices for each bar and divide the sum by 3.

TP = (HIGH + LOW +CLOSE)/3

To find the n-period SMA,. SMA(TP, N) = SUM[TP, N]/N 3.

To subtract the received SMA(TP, N) from Typical Prices. D = TP – SMA(TP, N) 4.

To multiply the received SMA(D, N) by 0,015. M = SMA(D, N) * 0,015 6.

To divide M by D CCI = M/D