# Commodity Channel Index (CCI)

In this article, We learn about "Commodity Channel Index (CCI)".Let's Go!

The Commodity Channel Index (CCI) is a technical indicator that measures the current price level relative to the average price level for a given time period.

It was created by Donald Lambert and was originally designed to identify cyclical changes in commodities.

CCI is classified as a momentum oscillator, which means that CCI is used to identify overbought and oversold levels.

The basic assumption behind the CCI indicator is that commodities move in cycles, with periodic highs and lows.

CCI indicates when one of these cyclical reversals is imminent .

While Lambert originally used CCI to trade commodities, today the indicator is used for different assets.

Traders use CCI to help identify price reversals, price extremes, and trend strength.

Like most technical indicators, the CCI should be used in conjunction with other forms of technical analysis.

## How to calculate Commodity Channel Index (CCI)

Correctly calculating the CCI requires several steps.

They are listed in the correct order below.

You must first calculate the typical price using the range's high, low and close. It is the simple arithmetic mean of three values.

calculation formula is:

`TP = (highest price + lowest price + closing price) / 3`
• TP​​ represents a typical price.
• High is the highest price in this range.
• Low is the lowest price in the range.
• Close is the closing price of the range.

Next, you calculate a simple moving average of typical prices for the specified number of periods.

`TPAVG = (TP1 + TP2 +... + TPn) / n`
• TP​​AVG is the moving average of typical prices.
• TP​​ is the typical price for the nth interval.
• n is the number of intervals for the mean.

The next step is rather complicated; it calculates the mean deviation. The formula is:

`MD = (|TP1 - TPAVG1| +... + | TPn - TPAVGn |) / n`
• MD is the mean deviation for this interval.
• TP​n is the typical price for the nth interval.
• TP​AVGn is the moving average of typical prices for the nth interval.
• n is the interval number.

symbol | | Specifies an absolute value. In mathematical terms, negative differences are considered positive values.

Now, the final CCI value is calculated as:

`CCI = (TPt - TPAVGt) / (.015 * MDT)`
• CCI is the Commodity Channel Index for the current cycle.
• TP​t is the typical price for the current period.
• TP​​AVGt is the moving average of typical prices.
• .015 is a constant.
• MDT is the mean deviation for the period.

For scaling purposes, Lambert set a constant of 0.015 to ensure that approximately 70% to 80% of the CCI values ​​fall between -100 and +100.

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