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COMMODITY SELECTION INDEX
Overview
The Commodity Selection Index ("CSI") is a momentum indicator. It was developed by Welles
Wilder and is presented in his book
New Concepts in Technical Trading Systems.
The name of the index reflects its primary purpose. That is, to help select commodities
suitable for short-term trading.
Interpretation
A high CSI rating indicates that the commodity has strong trending and
volatility characteristics. The trending characteristics are brought out by the
Directional Movement factor in the calculation--the
volatility characteristic by the
Average True Range factor.
Wilder's approach is to trade commodities with high CSI values (relative to other
commodities). Because these commodities are highly volatile, they have the potential to
make the "most money in the shortest period of time." High CSI values imply trending
characteristics which make it easier to trade the security.
The Commodity Selection Index is designed for short-term traders who can handle the
risks associated with highly volatile markets.
Example
The following chart shows the
Japanese Yen and its 14-day CSI. Strong volatility and strong trends result in high CSI
values at points "A" and "B."
Calculation
It is beyond the scope of this book to provide full calculation details on the Commodity
Selection Index. It is calculated using the ADXR component of the
Directional Movement indicator. Wilder's book
New Concepts in Technical Trading Systems
contains detailed information on the calculation of the CSI.
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