Commodity Selection Index (CSI)
The Commodity Selection Index (CSI) is developed to help select commodities that fit short-term trading. As an indicator of momentum, it is created for short-term traders who can handle the risks connected with rather inconstant markets. A high CSI rating demonstrates that the commodity has strong volatility characteristics and trending. The Directional Movement factor brings these characteristics in the calculation, the volatility characteristic by the Average True Range factor.
High CSI values are one of the factors with which CSI developer Welles Wilder describes his understanding of trading commodities. As these commodities are very changeable, they have the potential to make the fastest return in the shortest period of time. The ADXR component of the Directional Movement Indicator is also a base for the CSI. Wilder's book, which is called "New Concepts in Technical Trading Systems" gives a wide range of calculation details on the Commodity Selection Index.
If CSI rating is high, it means that the commodity has strong trending and volatility characteristics. The volatility characteristics are brought out by the Average True Range factor, and the trending characteristics are brought out by the Directional Movement factor in the calculation.
There is a connection between the Commodity Selection Index and the Directional Movement Index. The CSI is used to rate items in the more volatile short term because the ADXR plot of the Directional Movement Index is used for rating contracts from the longer term, trend-following point of view. The Commodity Selection Index takes into consideration such factors as the Average True Range, the ADXR from the Directional Movement Index, margin, and commission requirements, and the value of a one-cent move. The item is more attractive for trading if the CSI rating is high.