Commodity Channel Index
The Commodity Channel Index (CCI) shows when a price is high or low compared to its statistical average. The CCI is interpreted in the following ways:
- A price correction is likely when the price hits new highs and the CCI doesn't
- The market is overbought and may experience a correction if the CCI is above 100
- The market is oversold and may experience a correction if the CCI is below 100
Note that the CCI indicator was originally developed for trading commodities, but now it's used in many types of trading, including forex.
Calculation
To calculate the CCI, the typical price (TP) is calculated for the interval first. This is the average of the high, low and closing prices.
TP = ( HIGH + LOW + CLOSE ) / 3
The difference (D) between the simple moving average (SMA) price and the typical price is then calculated.
D = TP – SMA( TP, N )
N is the number of intervals used for the simple moving average
The CCI is then calculated by dividing the simple moving average of D by the value of D, and then multiplying by a scaling factor.
CCI = SMA( D, N ) / D * 0.015
You can find more information about technical indicators in the MetaTrader 4 User Guide. Select Help > Help Topics > Analytics > Technical Indicators.
