TECHNICAL INDICATORS

COMMODITYCOMMODITY

CHANNELCHANNEL

INDEXINDEX

OVERVIEW DEVELOPED BY DONALD LAMBERT

Designed to identify cyclical turns in Designed to identify cyclical turns in commodities. However, the CCI can be commodities. However, the CCI can be used effectively on any type of security.used effectively on any type of security.

High (Low) values indicate that prices are High (Low) values indicate that prices are unusually high (low) compared to average unusually high (low) compared to average pricesprices

Developing the CCIDeveloping the CCITypical Price – SMATPTypical Price – SMATP

.015 * Mean Deviation.015 * Mean Deviation Typical Price of last period = (H+L+C)/3Typical Price of last period = (H+L+C)/3 SMATP = SMA for the period equal to 1/3 of a SMATP = SMA for the period equal to 1/3 of a complete cycle (e.g.: 20 period SMA = 60 daycomplete cycle (e.g.: 20 period SMA = 60 day complete cycle.) complete cycle.) .015 = constant necessary to ensure that 70-80% .015 = constant necessary to ensure that 70-80% of CCI values fall between +100 and -100of CCI values fall between +100 and -100 Mean Deviation for the period Mean Deviation for the period

CCI for British Pound

Lambert’s guidelines:

Buy when CCI crosses above +100 scale line. Buy when CCI crosses above +100 scale line. Close position when CCI moves back below +100Close position when CCI moves back below +100

Sell when CCI drops below -100 scale line. Close Sell when CCI drops below -100 scale line. Close position when the CCI moves back above -100.position when the CCI moves back above -100.

Due to the implied constant (.015) in the CCI Due to the implied constant (.015) in the CCI formula, a buy or sell signal should be in force formula, a buy or sell signal should be in force only 20 to 30% of the time.only 20 to 30% of the time.

Overbought VS Oversold

Readings above +100 imply an overbought Readings above +100 imply an overbought condition and a pending price correction. A condition and a pending price correction. A sell signal may be given when CCI drops sell signal may be given when CCI drops back below +100.back below +100.

Readings below -100 imply an oversold Readings below -100 imply an oversold condition and a pending rally. A buy signal condition and a pending rally. A buy signal may be given when the CCI moves back may be given when the CCI moves back above –100.above –100.

DIVERGENCES

Occur when a security’s price is making Occur when a security’s price is making new highs (lows) while the CCI is failing to new highs (lows) while the CCI is failing to surpass its previous highs (lows)surpass its previous highs (lows)

Usually results in a price correction (rally)Usually results in a price correction (rally)

TRENDLINES

CONNECT THE PEAKS AND TROUGHS OF CONNECT THE PEAKS AND TROUGHS OF CCICCI

FROM OVERBOUGHT LEVELS, A DECLINE FROM OVERBOUGHT LEVELS, A DECLINE BELOW +100 AND A TRENDLINE BREAK BELOW +100 AND A TRENDLINE BREAK COULD BE CONSIDERED BEARISHCOULD BE CONSIDERED BEARISH

FROM OVERSOLD LEVELS, AN ADVANCE FROM OVERSOLD LEVELS, AN ADVANCE ABOVE –100 AND A TRENDLINE ABOVE –100 AND A TRENDLINE BREAKOUT COULD BE CONSIDERED BREAKOUT COULD BE CONSIDERED BULLISHBULLISH

CCI for British Pound

BROOKTROUT CHARTS

Conclusions

Effective measure, but use in conjunction Effective measure, but use in conjunction with other indicatorswith other indicators

Test to find most appropriate time frame Test to find most appropriate time frame and buy/sell points for individual stocksand buy/sell points for individual stocks