Commodity Channel Index: Tool for Trading
by DONALD R. LAMBERT
Reprinted from Commodities Magazine 1980 219 Parkade, Cedar Falls, IA 50613.
Many commodities exhibit some type of cyclical or seasonal price pattern. But, the commodity trader
still faces the problem of detecting when the regular price movements begin and end because climate and
other real world conditions may affect their timing.
One method that can help spot these turns is the Commodity Channel Index (CCI), a recently developed
index which is somewhat akin to a "standard score" in statistics. The CCI doesn't calculate cycle
lengths— you must determine them yourself or rely on an advisory service—but is a timing tool that
works best with seasonal or cyclical contracts.
To be useful in cyclical markets, an index must examine current prices in the light of past prices but must
not allow data from the distant past to confuse present patterns. For this reason, the CCI uses a moving
average rather than an exponentially smoothed average as a benchmark against which to measure current
The comparison of current prices to moving averages solves one problem by providing a moving
reference point. But, it leaves another problem for the trader: While some commodities typically move
only a few cents each day, daily moves in others might be hundreds of cents. Rather than develop
separate rules to determine each commodity's fluctuations, some standardization technique had to be