Commodity Channel Index or the CCI is the most well known technical indicator from the family of Oscillator. The CCI was created by Donald Lambert, to determine the difference in between currency’s mean price and the mean price’s average over a selected time period. The traders make use of this CCI to evaluate the conditions of overbought and also oversold, and as well as the starts and ends of the cycle at Forex market place.

CCI is categorized as the “oscillator”, as the maximum of the values varies in between the 100 and -100 range. The lines in this indicator are drawn at the values of 100 and -100 , as a warning signs. The values which cross this limit is regarded as a sturdy overbought situation and it is a signal of “selling”, when the values cross “100”, and suppose the curve drops below “-100” it is strong oversold situation or there will be a generation of “buying” signal.

The Formula for CCI:

The CCI is typically carried out on the trading software of the Metatraders. The calculation procedure is simple and is done in the following simple ways:

1. Select a preset period “X” let the standard setting be “14”

2. Calculate the “True Price”= (Sum of high, low and close) / 3

3. Compute the SMA for the True Price over “X” periods

4. Compute Standard deviation of SMA from every True Price;

5. Now, the CCI = (True Price –SMA) / 0.015 X SDV.

Commodity channel Index is a collection of single fluctuating curve. This CCI indicator is regarded as the most important indicator, as it anticipates that a trend change is about to occur. As this indicator hovers in the border limit of 70% – 80% time span, and also gives caution 20 percent to 30 percent. Cycle Repeats is the Principle of CCI here. When the Assets cycle is 1/3rd, the CCI works the best. The demerit of this CCI is the difficulty to determine the cycles at Forex market.

While cycle of basic Currency changes, there are chances of false signals to be generated or a sequence of signals which will be uncertain. So it is sensible to match the CCI along with other indicator.