The Commodity Selection Index (CSI)

What is the Commodity Selection Index?


The Commodity Selection Index (CSI) is a momentum indicator that was developed by John Welles Wilder, Jr. and was published in his book New Concepts in Technical Trading Systems in 1978. The CSI takes trend strength and volatility into account to determine momentum. It was developed specifically for short-term trading of commodity futures contracts that are likely have big moves in price and a potentially large ROI. It accomplished this by using the Directional Movement Index (DMI) (or the ADXR component of the DMI, to be more precise) to determine trend strength, the Volatility Index and Average True Range (ATR) to determine volatility, margin requirements relative to the DMI and volatility, and the reasonable commission rates of the futures contracts.

How is the CSI calculated?

The CSI is calculated by multiplying the ATR, a constant and the ADXR. The latter is the sum of the recent ADX plus the ADX of 14 periods ago divided by two. The formula for the CSI is:

CSI = ( ADXR x ATR14 ) x ( ( V / √M ) x ( 1 / ( 150 + C ) ) ) x 100

where V is the value of a 1c move in the commodity; M is the margin requirement in USD for trading the commodity contract, and C is the brokerage or commission in USD.

How is the CSI used?

The CSI is used as a filter to identify commodities that could be traded with a high ROI in the short term. A commodity with a high CSI value relative to other commodities indicates that the underlying commodity is in a strong trend, with a high volatility, and relatively low margin an commission rates.