Constructing an eleven-period commodity channel index

Why rebuild the index

Editorial note: this article treats the commodity channel index as a rebuildable four-step construction rather than a finished black box. The lesson is to audit typical price, a matching-window average, mean absolute deviation, and a fixed scale factor one term at a time.

The steps below are the historical construction workflow. The 11-period case is the worked example, not a required length.

Typical price

The first constructed series is a typical price formed by adding the high, low, and close and dividing the sum by three.

Typical price is the session high, low, and close averaged together and divided by three.

A matching-window average

The second series is a simple moving average of typical price taken over the same lookback used for the rest of the construction.

That lookback window is the freely chosen number of sampling intervals used for both the average and the mean deviation. The simple moving average is the unweighted mean of typical prices over that window.

Mean deviation

Mean deviation is obtained by taking the absolute difference between the current moving average and each typical price in the window, summing those deviations, and dividing by the window length.

In other words, mean deviation is the average of the absolute gaps between each typical price in the window and the current moving-average value.

The scaled ratio

The finished index is a ratio whose numerator is current typical price minus the current moving average and whose denominator is current mean deviation multiplied by 0.015.

The scaling constant is that fixed factor 0.015 applied to mean deviation in the denominator so the finished ratio is scaled. The commodity channel index is the ratio of typical price minus its moving average to scaled mean deviation.

When an 11-period build can start

In an 11-period build, the moving average, mean deviation, and index cannot be completed until 11 typical-price observations are available.

Keep each column inspectable

A worksheet can keep typical price, the window average, mean deviation, and the index in successive columns so each construction step remains independently inspectable.

Editorial note: reading those columns in order is the practical audit. If a later column cannot be traced to the earlier ones, the finished index is no longer a transparent rebuild.