The CSI was developed by Welles Wilder and was first published in the book New Concepts in Technical Trading Systems. The higher the CSI, the greater the volatility and strength of trend. Traders use the CSI is to find commodities with the highest volatility, because it has the greatest odds of quick gains. The CSI is designed for short-term traders that have money management rules that account for the risks associated with highly volatile markets.
A technical momentum indicator that attempts to identify which commodities are the most suitable for short-term trading. The larger the CSI value, the stronger is the trend and volatility characteristics associated with the asset. This indicator should only be used by traders who can handle large amounts of volatility as it indicates strong trending, but reversals are always possible.
The Commodity Selection Index (CSI) is developed to help select commodities that fit short-term trading. As an indicator of momentum, it’s 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.
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.