What is 'Commodity Selection Index or CSI'

Commodity Selection Index or CSI is a technical momentum indicator that attempts to identify which commodities are the most suitable for short-term trading. The larger the CSI in value, the stronger 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.

BREAKING DOWN 'Commodity Selection Index or CSI'

 

The Commodity Selection Index is a tool mostly used in short-term trading. Short-term traders know that the key to making money is movement, which is the reason that they mainly focus on the highly volatile assets. This index attempts to lessen the amount of risk taken, and make it easier to trade by incorporating trend characteristics. Some traders will only trade the commodity with the highest CSI value, while others will make transaction signals when they see a sharp increase in this value.

Indicators refer to statistics that an investor may use to measure current economic conditions; an investor also may use an indicator such as the CSI to forecast financial or economic trends. To further define the terms, indicators break down into either economic indicators or technical indicators. Economic indicators measure the growth or contraction of the economy as a whole, or sectors within the economy. In fundamental analysis, economic indicators that quantify current economic and industry conditions provide insight into the future profitability potential of public companies. Technical indicators, like the CSI, are used extensively in technical analysis in order to predict stock trends or price patterns in traded assets.

The Commodity Selection Index Short Term Investing

The CSI is specifically used to hedge the risk of short-term investing. Short-term itself is a concept that refers to holding an asset for a year or less, and in the investing industry, a security with a holding period of one year or less is a short-term security. Short-term trading can be very lucrative, but it can also be risky. A short-term trade can last for as little as a few minutes to as long as several days. Because short-term trading carries both high risk and high reward, traders must understand each trade in order to be successful.

There are several basic concepts that a trader can master in order to succeed at short-term trading. A trader must be able to recognize a good trade before the markets react to the trade, meaning the trader should not react to already occurring market trend, but be able to preemptively act to benefit from the market reaction.

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