Accumulation Swing Index Indicator

Created by Welles Wilder, the Accumulation Swing Index Indicator is a technical tool which tries to locate the swing line within the bar. Initially this indicator was designed to be applied on daily bars considering the market-defined or user-defined values of the maximum price change that could occur during each trading session. Wilder once said: “Somewhere amidst the maze of Open, High, Low and Close prices is a phantom line that is the real market.” The Accumulation Swing Index (ASI) attempts to show this “real market”.

What is the Accumulation Swing Index Indicator?

The ASI Indicator basis its functionality on the price of a currency pair. This indicator follows the pattern of candlesticks on the price chart of the currency pair on which it is placed. The Accumulative Swing Index Indicator shows Support and Resistance (SnR) levels and also provides trends confirmations once either of these technical levels are breached. The ASI helps in estimating the long-term trend in a symbol’s price with the aid of its OHLC (Open, High, Low, Close) prices.

Setting up the Accumulation Swing Index Indicator
Setting up the Accumulation Swing Index Indicator

Accumulation Swing Index Strategy

The ASI strategy is a really useful strategy especially when it comes to swing trading, as it confirms changes in price direction. The traders using this strategy tend to focus on small price changes in either direction, based on the fact that price is in a constant flux moving up and down. Long or short positions are opened, which are then held for a short time before taking profits. This way traders could also profit from intra-day gains even if the price of the currency pair being traded is below the previous close, and profit from prices that fall intra-day even if they traded above the previous close. Although the ASI Indicator was created for prices of futures, traders can also use it to analyse long-term stock and currency price moves.

Buy Signal

The following could be your checklist for a buy trade:

  • When the ASI breaks above a downward trend line.
  • When the ASI breaks above a resistance during a consolidation.

Once any of these two events occur, you could do the following:

  • Open a buy position just after you’ve identified the breakout.
  • Set your stop loss just below the nearest support level.
  • Set your take profit at the nearest resistance zone.

For good risk management and long-term profitability, only pick the trade if your risk to reward ratio is 1:2 or more.

Accumulation Swing Index Indicator Buy Setup
Accumulation Swing Index Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When the ASI breaks below an upward trend line.
  • When the ASI breaks below a support during a consolidation.

Once any of these two events occur, you could do the following:

  • Open a sell position just after you’ve identified the breakout.
  • Set your stop loss just above the nearest resistance level.
  • Set your take profit at the nearest support zone.

For good risk management and long-term profitability, only pick the trade if your risk to reward ratio is 1:2 or more.

Accumulation Swing Index Indicator Sell Setup
Accumulation Swing Index Indicator Sell Setup

 

Accumulation Swing Index Pros & Cons

Pros

  • The ASI provides a numerical value that quantifies price swings.
  • This indicator also helps define short-term swing points.
  • The ASI is a profitable tool for trend confirmation.

Cons

  • The ASI Indicator does not provide a full picture of the market, hence it is not advisable to use it solely for technical analysis as a trading guide.
  • Works better with volume-based indicators, and not alone.

Conclusion

The Accumulation Swing Index Indicator is best used as a confirmation tool alongside other technical indicators and price action. The ASI Indicator, though may not be a commonly used indicator, is an important tool for technical analysis which can cause a trader to catch some good moves in the market. Most indicators have an area where they are best suited for analysis, the ASI Indicator is no different in this wise. This is one major reason why it’s good to use indicators in conjunction with each other.