[blackcat] L2 Ehlers Adaptive Commodity Channel Index

26 oct 2020

Level: 2

Background

John F. Ehlers introucedAdaptive Commodity Channel Index in his "Rocket Science for Traders" chapter 21 on 2001.


Function

The Commodity Channel Index (CCI) computes the average of the median price of each bar over the observation period. It also computes the Mean Deviation (MD) from this average. The CCI is formed as the current deviation from the average price normalized to the MD. With a Gaussian probability distribution, 68 percent of all possible outcomes are contained within the first standard deviation from the mean. The CCI is scaled so that values above +l00 are above the upper first
standard deviation from the mean and values below -100 are below the lower first standard deviation from the mean. Multiplying the MD in the code by 0.015 implements this normalization. Many traders use this indicator as an overbought/oversold indicator with 100 or greater indicating that the market is overbought, and -100 or less that the market is oversold. Since the trading channel is being formed by the indicator, the obvious observation period is the same as the cycle length. Since the complete cycle period may not be the universal answer, Dr. Ehlers includes a CycPart input as a modifier. This input allows you to optimize the observation period for each particular situation.

Key Signal

CCI ---> Adaptive Commodity Channel Index fast line
CCI[2] ---> Adaptive Commodity Channel Index slow line

Pros and Cons

100% John F. Ehlers definition translation of original work, even variable names are the same. This help readers who would like to use pine to read his book. If you had read his works, then you will be quite familiar with my code style.

Remarks

The 20th script for Blackcat1402 John F. Ehlers Week publication.

Readme

In real life, I am a prolific inventor. I have successfully applied for more than 60 international and regional patents in the past 12 years. But in the past two years or so, I have tried to transfer my creativity to the development of trading strategies. Tradingview is the ideal platform for me. I am selecting and contributing some of the hundreds of scripts to publish in Tradingview community. Welcome everyone to interact with me to discuss these interesting pine scripts.

The scripts posted are categorized into 5 levels according to my efforts or manhours put into these works.

Level 1 : interesting script snippets or distinctive improvement from classic indicators or strategy. Level 1 scripts can usually appear in more complex indicators as a function module or element.

Level 2 : composite indicator/strategy. By selecting or combining several independent or dependent functions or sub indicators in proper way, the composite script exhibits a resonance phenomenon which can filter out noise or fake trading signal to enhance trading confidence level.

Level 3 : comprehensive indicator/strategy. They are simple trading systems based on my strategies. They are commonly containing several or all of entry signal, close signal, stop loss, take profit, re-entry, risk management, and position sizing techniques. Even some interesting fundamental and mass psychological aspects are incorporated.

Level 4 : script snippets or functions that do not disclose source code. Interesting element that can reveal market laws and work as raw material for indicators and strategies. If you find Level 1~2 scripts are helpful, Level 4 is a private version that took me far more efforts to develop.

Level 5 : indicator/strategy that do not disclose source code. private version of Level 3 script with my accumulated script processing skills or a large number of custom functions. I had a private function library built in past two years. Level 5 scripts use many of them to achieve private trading strategy.