Reprinted from: http://www.alpari.co.uk/en/market-analysis-guide/technical-analysis/cci.html

Oscillators: Commodity Channel Index (CCI)

Commodity Channel Index (CCI) measures the price deviation of a particular instrument from its average traded price.

A very high index value (more than +100) indicates that the price is in the overbought area, and a very low value (lower than -100) indicates that the price is in the oversold territory.

Commodity Channel Index (CCI) calculations:

• 1) Find a typical price: add high, low and close of each bar and divide it by 3:
  TP = (HIGH + LOW + CLOSE) / 3
• 2) Calculate the simple moving average of the typical prices over n-periods:
  SMA (TP, N) = SUM (TP, N) / N
• 3) Subtract SMA(TP, N) from the typical prices ( TP) of each preceding n periods:
  D = TP - SMA (TP, N)
• 4) Calculate simple moving average of the absolute D values over n periods:
  SMA (D, N) = SUM (D, N) / N
• 5) Multiply SMA (D, N) by 0,015:
  M = SMA (D, N) * 0,015
• 6) Divide M by D:
  CCI = M / D

Where:

• HIGH - bar high;
• LOW - bar low;
• CLOSE - close price;
• SMA - simple moving average;
• SUM - total amount;
• N - the number of periods used for the calculation.
  

Commodity Channel Index (CCI) signals:

• Bullish divergence / bearish convergence is the main signal. In distinction from another oscillators, Commodity Channel Index (CCI) is the most sensitive one, hence divergence / convergence is not always a signal of the weakness of the trend, but always quite accurately defines the beginning of the correction;
• Under flat conditions exit from the overbought / oversold territory is a sell (buy) signal.

In order to add the Commodity Channel Index (CCI) indicator in MetaTrader 4, use the "Insert ->Indicators -> Trend -> Commodity Channel Index" menu sequence.

Examples of CCI's bullish divergence / bearish convergence