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What is the commodity selection index?
The Commodity Selection Index (CSI) is a momentum indicator based on the Directional Movement Indicator and the Average True Range.
It helps commodities traders find momentum in commodities futures that seem to be the best candidates to make the trader money in the short term, based on volatility and also the cost of holding the position.
This momentum indicator uses multiple other indicators for price, volume, and volatility to find short term trends. It may identify situations where a price movement is likely to persist. This is certainly not a guarantee, and even if a trend is strong there are often retracements and unexpected reversals.
If a commodity has high trending characteristics but is volatile, that is when its CSI value will be high. It also takes the cost of taking a position into account, considering margin requirements and commissions.
The formula incorporates the Average Directional Movement Rating (ADXR), which is a directional indicator, and the Average True Range, which tracks volatility, along with the margin and commission required to hold a particular position.
The idea is that commodities trending in one direction or the other which have high volatility and low costs present the highest probability for making money on short term trading, and the index helps to separate commodity positions based on this criteria.
It was introduced by Welles Wilder in his book New Concepts in Technical Trading Systems, published in 1978.
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