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Specifically developed to trade commodities, the CSI, Commodity Selection Index, is a technical analysis/momentum indicator developed by the popular trader Welles Wilder in his 1978's book "New Concepts in Technical Trading Systems". The indicator is intended to select futures contracts that will likely have the biggest moves for each dollar invested.
The Commodity Selection Index is a trading indicator that is computed by multiplying the Average true range, a constant and the Average Directional Movement Index Rating or ADXR. The Average Directional Movement Index Rating is the sum of the recent ADX value plus the ADX value of 14 bars ago and then divided by two.
The constant value is calculated using three parameters. The Move value should be set to the minimum size move of the underlying security, the margin value is the margin requirement of the futures contract and finally the commission value should be equal to the commission amount of the futures contract. All these parameters as well as the period must be passed as parameters to the commodity selection index function. The lookback period is used to calculate the Average true range and the Average directional movement index rating indicators in the CSI function.
The Commodity Selection Index signals a strong trend with higher volatility for the underlying security when its value is moving upwards. It signals a weak trend with less volatility when its value is moving downwards.
The Average directional movement index rating helps determine whether the commodity or futures contract is trending or not, while the Average true range component measures the volatility of the security.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
