TRADING TECHNIQUES
True Relationship Revealed!
The Link Between Bollinger Bands And The Commodity Channel Index
by Neil Jon Harrington
Bollinger Bands and the commodity channel index (CCI) have been employed independently, in conjunction with other indicators, and with each other. Could standard deviation bands around price action be a generalization of an oscillator plotted below the prices?IN my work in technical market analysis (TMA), I never really considered the commodity channel index (CCI) until December 2003, when I attended a conference of Woodie's CCI Club, highlighted by a talk by CCI creator Donald R. Lambert. Seeing so many people willing to come to a conference just to discuss one indicator got me curious. That curiosity led to my own study of the CCI in December 2003 and early January 2004. During that time, I happened upon an interesting relationship between the CCI and John Bollinger's work with standard deviation bands, which he coined "Bollinger Bands."
INITIAL RESEARCH
When I got home from the conference, I started experimenting with the CCI in the emini Standard & Poor's 500 market. I noticed it looked a lot like Bollinger's %B indicator, which I sometimes use. I changed a default setting of the %B and it became so close to the CCI that they had to be mathematically equivalent, or very close to it. That intrigued me even more.
But before going any further into my research, let's review the technical foundation of the commodity channel index and Bollinger's Bollinger Bands.
...Continued in the October issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the October 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.
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