Accumulative Swing Index Explained

Introduction to Accumulative Swing Index

The Accumulative Swing Index which is commonly abbreviated to ASI and is a very popular technical analysis indicator. The indicator was created by Welles Wilder who is also the creator of many other indicators which are the backbone of many trading strategies, including his very own iteration of a Moving Average.

How Accumulative Swing Index Behaves

The Accumulative Swing Index trendline will typically follow the line or candlestick pattern of an asset price. The indicator represents the cumulative value of the Swing Index for each timeframe over a specified period of time. When there is an upswing, the values will go above zero and increase. When there is a downswing, the values will go below zero and decrease. The range of the trendline is typically between 100 and -100. Initially, it was used for futures trading but its application has been proven for different asset classes. The values calculated by ASI try to identify the real market based on open, close, high, low of the current and previous trading period.

Example of Accumulative Swing Index
Example of Accumulative Swing Index

To understand the Accumulative Swing Index you need to know how Swing Index is calculated. It continuously compares the following prices;

  • actual closing price with opening price,
  • actual closing price to prior closing price,
  • actual highest price to prior closing price,
  • actual lowest price to prior closing price,
  • prior closing price to prior opening price.

How to Use ASI When Trading

The indicator is used for getting confirmation of a trend or finding support and resistance levels. When you use this indicator you will be able to look out for divergencies, break-outs, support and resistance levels. Every signal generated this way should have an additional confirmation with market prices and volumes. Values around the zero line identify trendless (flat) market conditions. Signals are presented when the previous high swings or low swings are breached. A buy signal is created when a previous high is breached. A Sell signal is created when a previous low swing is breached. A useful tip for when you are using the ASI indicator in cTrader is to add a level at zero. This is important so that you can clearly notice when the line transitions between positive and negative values. You can see that we have done this in our previous image. 

Example of Accumulative Swing Index Showing Flat Market
An example of Accumulative Swing Index Showing a Flat Market

 

Flat Market

Here is an example of what a flat market looks like with the Accumulative Swing Index indicator. The main characteristic is that there is no swing. The line hardly crosses the zero level in any noticeable way, when it does, it’s in a very minor fashion. You can see very similar behaviour from the price Trendbars too. In this example we used the Germany 30 index on a one-hour timeframe. 

 

Example Accumulative Swing Index Showing Breakout
An example Accumulative Swing Index showing a Breakout

Buy Signal and Breakout

In contrast, we can see a very choppy Accumulative Swing Index in this example. The downward arrow indicates the previous high. The dashed box shows the area where the ASI surpasses the previous highs, all three of them actually. This would be considered a confirmation of a Buy signal. Anywhere inside this box would be a good entry point. For this example we used the Gold vs. The US Dollar on a one-hour timeframe. 

 

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