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Commodity Channel Index

CCI is based on a comparison of price and moving average. If the price is greater than the moving average, then The CCI will rise towards or past the 100% line. The most popular way to use The CCI is to watch for overbought or oversold conditions.

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100% found this document useful (1 vote)
116 views2 pages

Commodity Channel Index

CCI is based on a comparison of price and moving average. If the price is greater than the moving average, then The CCI will rise towards or past the 100% line. The most popular way to use The CCI is to watch for overbought or oversold conditions.

Uploaded by

Meet Darji
Copyright
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Technical Event Educational Material

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Overview | Technical Event Lookup | Technical Event Screener | Alerts | Education | Performance Scorecard

Technical Event Educational Material


Commodity Channel Index (CCI) Oscillator

Implication Recognia identifies the following CCI events:

Implication Description Trading Considerations

A bullish event when the CCI rises above the +100% line. Another event signaling the end of the previous bullish trend occurs when the CCI subsequently falls below the +100% line. A bearish event when the CCI falls below the -100% line. Another event signaling the end of the previous bearish trend occurs when the CCI subsequently rises above the -100% line. top Description Although the name CCI uses the term "commodity", the oscillator is commonly used for analyzing equities. A CCI is based on a comparison of price and moving average. The CCI is expressed as percentage that oscillates between -100 and 100. However, these levels can be exceeded. The Commodity Channel Index quantifies the relationship between the asset's price, a 20 bar moving average (MA) of the asset's price, and the mean of the absolute deviations (D) from that average. It is computed with the following formula:

Typically, if the price is greater than the moving average, then the CCI will rise towards or above the 100% line. If the price drops below the moving average, then the CCI will drop towards or past the -100% line. There are divergences and exceptions to this price/CCI behavior that technical analysts should be aware of when making trades.

top Trading Considerations Technical analysts use CCI in a couple of ways 1) to predict a price reversal, and 2) to determine overbought or oversold conditions. To predict a price reversal, compare the direction trend lines for the price and CCI. If the direction of the price trend line is different than the direction of the CCI trend line a divergence is said to have occurred, and a price reversal may follow. The most popular way to use the CCI is to watch for overbought or oversold conditions. A stock is considered overbought when it is reaches 100% or higher, and oversold when it is -100% or lower. Some technical analysts use CCI with the view that an overbought condition precedes a price drop, and that an oversold condition precedes a rise in price.

https://site.recognia.com/icici/serve.shtml?page=education&eventtypeid=1014&ref=chart&sid=493317... 9/9/2010

Technical Event Educational Material

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Colby, however, identifies the trading rules for using CCI as follows: Buy long when CCI rises above 100% Buying long means that you are buying stock to own with the expectation that price will rise. You expect to earn a profit when you sell the stock at a higher price. Sell long when CCI falls below 100% Selling long means selling stock that you own, ideally, at a higher price than when you bought it so that you will earn a profit. Sell short when CCI falls below -100% Selling short means that you are selling stock that you have borrowed with the expectation that price will fall. If the price falls, you can profit by buying back the stock at a lower price and using it to replace the higher-priced stock that you borrowed. For example, if you sell stock for $100.00 per share, buy it back later at $70.00 per share, and then return the stock to the lender, your profit is $30.00 per share. Cover short when CCI rises above -100% Covering short means that you are buying stock to replace stock that you have borrowed. To maximize your profit you will want to buy back the stock at a price that is lower than it was when you sold.
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities Ltd (I-Sec). The author of the report does not hold any investment in any of the companies mentioned in this report. I-Sec may be holding a small number of shares/position in the above-referred companies as on date of release of this report. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This report may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. I-Sec may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. The Recognia Technical Analysis service is provided by Recognia Inc. This service is for informational purposes only. The information contained in this service does not constitute advice or a recommendation by ICICI Securities Ltd. or Recognia Inc. in respect of the investment in financial instruments. Technical Event and Recognia are registered trademarks of Recognia Inc.

https://site.recognia.com/icici/serve.shtml?page=education&eventtypeid=1014&ref=chart&sid=493317... 9/9/2010

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