The Commodity Channel Index (CCI) measures whether the stock price is beyond the normal distribution range. It is one of the indicators for overbought and oversold stocks (when the CCI moves above +100), but it has its unique features compared with others. Most indicators that evaluate overbought and oversold conditions like KDJ and Williams %R move between "0-100". Therefore, they are more suitable for the judgment of the normal market data. For stocks that have plunged in the short term, the phenomenon of indicator passivation may occur at this time. The CCI moves between positive and negative infinity, so there will be no indicator passivation, which will help investors better judge the market, especially the short-term ups and downs.
The calculation method of CCI is the same as other technical indicators. Due to the different calculation cycles, the homeopathy CCI includes daily CCI, weekly CCI, yearly CCI, and minute CCI. The daily CCI and the weekly CCI indicator are often used for stock market judgment. Although they take different values when calculated, the primary method is the same.
CCI = (TYP - MA) / MD / 0.015；
TYP = (High + Low + Closing Price) / 3. MA averages out the closing prices for N days, and MD is the average absolute variance of the recent N-day typical price (TYP).
From the above, we can see that the calculation of CCI is more complicated than other technical indicators. Due to the popularity of stock analysis software, investors don't need to calculate the CCI. They mainly understand how the CCI is calculated to become more proficient in using it to judge the stock market.
Judgment of the CCI interval:
1) When the CCI moves from negative or near-zero territory to above 100 and enters the abnormal range, it indicates that the stock price is out of the normal state and enters the abnormal fluctuation stage.
2) When the indicator goes from positive or near-zero readings to below -100 and enters another abnormal range, it indicates that the consolidation phase of the stock price has ended and will enter a relatively long bottoming process.
3) When the CCI moves from positive or near-zero territory to above 100 and re-enters the normal range, it indicates that the rising stage of the stock price may end and will enter a relatively long consolidation period.
4) When the indicator goes from negative or near-zero readings to below -100 and re-enters the normal range, it indicates that the bottoming stage of the stock price may end and will enter a consolidation stage.
5) When the CCI moves in the normal range of +100 and -100, investors can use KDJ, Williams %R, and other indicators that evaluate overbought and oversold conditions to judge.