Charting The Market  |  OCT 2004

Charting The Market by David Penn

Stocks & Commodities V. 22:10 (58-61): Charting The Market by David Penn Writing in Commodities Magazine back in 1980, technical analyst Donald Lambert observed that: Many commodities exhibit some type of cyclical or seasonal price pattern. But the commodity trade 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. To be useful in cyclical markets, an index must examine current prices in light of past prices but must not allow data from the distant past to confuse present patterns … 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. It was the commodity channel index, or CCI, that turned out to be the object of Donald Lambert’s quest. Now a technical indicator found on virtually all technical analysis charting software packages, the CCI was developed during the height of commodity speculation in 1980. Originally intended for use with cycle analysis, the CCI has survived and prospered as a tool for technicians and chartists, whether or not they are deploying the indicator for the purpose of following cycles.

by David Penn