Saturday, April 21, 2012

Commodity Selection Index (CSI)

Commodity Selection Index

The Commodity Selection Index (CSI) has been initially developed for stock trading, where it was used to find commodities with the highest profit potential for short-term trading.

The CSI indicator was first introduced Welles Wilder in the book called "New Concepts in Technical Trading Systems".

Commodity Selection Index theory

CSI combines 4 factors, which determine the best commodities for trading.

CSI suggest that the best commodities are:

       - high in directional movement (DMI indicator value)

       - high in volatility (Volatility Index value and ATR)

       - have reasonable margin requirements (relative to directional movement & volatility)

       - have reasonable commission rates 

How to trade with CSI

 Wilder's approach is to trade commodities with high CSI values (relative to other commodities).

A high CSI rating demonstrates that the commodity has strong volatility characteristics and is trending.

Such commodities with high CSI rating are very volatile, and have the potential to make the fastest profits in the shortest period of time.

Commodity Selection Index formula


CSI calculation example

 Although high CSI values imply trending markets characteristics, the indicator is designed for short-term traders who can handle the risks associated with highly volatile markets.



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