|  JUL 1983

Commodity Channel Index: Tool for Trading Cyclic Trends by DONALD R. LAMBERT

Commodity Channel Index: Tool for Trading Cyclic Trends 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 prices. 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 found.

by DONALD R. LAMBERT