Reducing CCI Signal Noise by Filtering Prices Before Calculation

Summary

The document explains the Commodity Channel Index (CCI) and presents a variant that filters prices before calculating the indicator. Standard CCI compares typical price with its simple moving average, scales the difference by mean absolute deviation, and applies a factor of 0.015. The document says this scaling was chosen so roughly 70 to 80 percent of readings would fall between −100 and +100, though the share depends on the lookback period. Shorter periods produce more volatile readings.

The proposed variation aims to reduce false signals from frequent level crossings. It applies a selected price average—simple, exponential, smoothed, or linearly weighted—before computing CCI, with the stated goal of adding less lag than smoothing the completed CCI. Users can treat color changes as signals, with coloring based on slope, threshold levels, or zero crossings. No backtest or performance evidence is provided, so the claimed reduction in lag and any trading value are not demonstrated; signal settings and market suitability remain unspecified.

Key ideas

• CCI measures typical price deviation from its moving average relative to mean absolute deviation.
• The 0.015 scaling factor is intended to place roughly 70 to 80 percent of readings between −100 and +100.
• Shorter CCI lookbacks tend to produce more volatile readings.
• The described variant filters prices before calculating CCI to address noisy level-crossing signals.
• It offers several average types and three color-change modes, but provides no performance testing.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.