Absolute Strength Histogram (ASH) Indicator

The absolute strength histogram is a great indicator for keeping track of developing trends. This trading strategy uses two absolute strength histograms, one for the shorter-term trend and one for the longer-term trend. Utilizing this indicator, traders have a better chance of finding pullback trades. Let’s take a go at figuring out how the indicator works.

What is the Absolute Strength Histogram (ASH)?

The absolute strength histogram (ASH indicator) is a technical indicator that is used to filter the data from the primary indicator and figure out which way the market is going. Under the working price chart, you can find the indicator. It looks like a histogram with green and red bars. The columns are the distance from the bottom of the indicator to the slow MA and the fast MA, while the bars indicate the values of the MAs. The RSI and a stochastic oscillator are also included in the algorithm as indicators. Technical analysts don’t pay much attention to this indicator because the people who made it didn’t use any new math techniques.

Absolute Strength Histogram Strategy

The absolute-strength histogram shows not only who is in charge of the market but also how much power they have. It gives a clear picture of the direction and strength of the trend. The indicator shows a range of green bars when the green line is above the red line and a range of red bars when the red line is above the green line. The rate of change determines how high the bars appear. This indicator plots large bars during strong trends, in contrast to when the market is trading in a narrow range. When the green line rises over the red line, an upward trend is signaled, whereas a downward trend is indicated when the red line rises above the green line.

When the green line on both indicators is higher than the red line, this indicates that traders are bullish on the market in the long run as well as in the near term. Traders should focus on long trades exclusively at the moment and avoid short entry.

Both long-term and short-term traders become bearish when the red line of either indicator rises over the green line. At this time, traders should only enter short trades and not long trades.

Even though it seems simple, there is an oddity that must be considered whenever this indication is used. A green column must be painted on top of the red column if there is to be a green column at all. If not, the signal is likely false, and you shouldn’t place any trades based on it.

Buy Signal

Absolute Strength Histogram Buy Signal
Absolute Strength Histogram Buy Signal
  • Price forms a structure of higher highs and higher lows.
  • The green histogram line is above the red histogram line.
  • The trader can retain long positions until the above requirements are fulfilled.
  • Place stop loss a few pips below the market’s previous low.
  • Take profit or quit the position when the Absolute Strength Histogram Indicator displays the first red bar.

Sell Signal

Absolute Strength Histogram Sell Signal
Absolute Strength Histogram Sell Signal
  • Price forms a structure of lower lows and lower highs.
  • The Green line is lower than the red line, thus the histogram is red.
  • The trader can maintain short positions till the above requirements are fulfilled.
  • Place stop loss a few pips above the most recent market lower high.
  • Take profit or close the position when the Absolute Strength Histogram Indicator displays the first green bar.

Absolute Strength Histogram Pros & Cons

Pros

  • Convenient visual display.
  • A small number of settings.
  • Relatively good performance

Cons

  • It often lags behind the price movement.
  • You need to time the entry.
  • Need goos risk management.

Using the absolute strength histogram in conjunction with price-predicting indicators or oscillators can also help address the issue. It doesn’t serve as a trend or oscillator indicator. An absolute strength histogram is a supplemental tool. So, it is not the main tool. Therefore, it is used to confirm signals from other indicators and add to other methods.

Conclusion

An absolute strength histogram (ASH) is a useful indicator to use in trending strategies. The default settings for an indicator are made to be as flexible as possible across a wide range of assets that can be traded. Adjust indicator settings independently for each trading asset for more precision and practice on a demo account to see how things go.

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