Transcript technical indicators

TECHNICAL INDICATORS
COMMODITY
CHANNEL
INDEX
OVERVIEW
DEVELOPED BY DONALD LAMBERT
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Designed to identify cyclical turns in
commodities. However, the CCI can be
used effectively on any type of security.
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High (Low) values indicate that prices are
unusually high (low) compared to average
prices
Developing the CCI
Typical Price – SMATP
.015 * Mean Deviation
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Typical Price of last period = (H+L+C)/3
SMATP = SMA for the period equal to 1/3 of a
complete cycle (e.g.: 20 period SMA = 60 day
complete cycle.)
.015 = constant necessary to ensure that 70-80%
of CCI values fall between +100 and -100
Mean Deviation for the period
Lambert’s guidelines:
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Buy when CCI crosses above +100 scale line.
Close position when CCI moves back below +100
Sell when CCI drops below -100 scale line. Close
position when the CCI moves back above -100.
Due to the implied constant (.015) in the CCI
formula, a buy or sell signal should be in force
only 20 to 30% of the time.
Overbought VS Oversold
Readings above +100 imply an overbought
condition and a pending price correction. A
sell signal may be given when CCI drops
back below +100.
 Readings below -100 imply an oversold
condition and a pending rally. A buy signal
may be given when the CCI moves back
above –100.
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DIVERGENCES
Occur when a security’s price is making
new highs (lows) while the CCI is failing to
surpass its previous highs (lows)
 Usually results in a price correction (rally)
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TRENDLINES
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CONNECT THE PEAKS AND TROUGHS OF
CCI
FROM OVERBOUGHT LEVELS, A DECLINE
BELOW +100 AND A TRENDLINE BREAK
COULD BE CONSIDERED BEARISH
FROM OVERSOLD LEVELS, AN ADVANCE
ABOVE –100 AND A TRENDLINE
BREAKOUT COULD BE CONSIDERED
BULLISH
CCI for British Pound
BROOKTROUT CHARTS
Conclusions
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Effective measure, but use in conjunction
with other indicators
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Test to find most appropriate time frame
and buy/sell points for individual stocks