How to Use Accumulative Swing Index in Trading

This article explains what the Accumulative Swing Index is, what signals it gives, how to calculate and set it up in the trading terminal and of course how to use it in trading.

What the Accumulative Swing Index shows

The Accumulative Swing Index (ASI) was invented and popularized by Wells Wilder, a well-known trader, financial analyst and creator of several other indicators. He detailed ASI's work in his 1978 book, New Concepts in Technical Trading Systems.

To calculate ASI, the current and previous time frame prices are used – Close, Open, High, Low. The results help to assess the current price dynamics of each instrument. The indicator appears in a separate window below the price chart and looks like a main line.

The lines make it possible to see the direction of the current market trend and confirm (or not) the breakout and bounce of the support/resistance levels on the chart. A rising ASI indicates a true uptrend and a falling ASI indicates a downtrend.

Accumulative Swing Index Window

How to calculate the Accumulative Swing Index

The indicator is calculated using the following formula:

As in) = breast milk(n-1) + Sin)

Sin) = 50 * (CLOSE(n-1) – CONCLUDE + 0.5 * (CLOSE(n-1) – OPEN(n-1)) + 0.25 * (CLOSE – OPEN) / R) * (K /T)

Where:

SI(n) is a swing index, an index of price changes;

SI(n-1) is the swing index of the previous period;

CLOSE(n) is the current closing price;

CLOSE(n-1) is the closing price of the previous period;

OPEN(n) is the current opening price;

OPEN(n-1) is the OPEN price of the previous period;

R is the ratio of the closing price to the previous extreme;

K is the extreme ratio: (HIGH(n−1) CLOSE(n )) (LOW(n−1) CLOSE(n ));

T is the maximum price change;

ASI(n) is the Accumulative Swing Index.

How to install the Accumulative Swing Index in the trading terminal

The Accumulative Swing Index is not one of the standard indicators in most trading terminals, which means that in order to use it in MetaTrader 4, you need to download the installation file and install the indicator. For example, you can find files on MetaQuotes Ltd.

How to install ASI in MetaTrader 4: Main Menu – Files – Open Data Catalog – MQL4 – Indicators – Paste files into folders – Restart terminal.

To add ASI to the price chart: Main Menu – Insert – Indicator – User – ASI.

The Accumulative Swing Index is usually used with the default parameter (variable T = 300).

How to trade with ASI

Signals from the indicator can be used to trade currency pairs, stocks, gold and other liquid assets. According to the authors, higher time frames provide more reliable signals. There are two main trading options for using ASI – a break of support/resistance levels and divergence.

Confirmation of the break of the support/resistance levels

This approach uses ASI to confirm a break of the support/resistance level on the price chart. To get signals, trend lines are drawn through local highs/lows in the indicator window and on the price chart. The simultaneous break of these lines in the window and on the chart is considered a signal.

A buy signal is formed after the price on the price chart breaks the key resistance level or ascending line. ASI management should confirm these outliers in the indicator window. After ASI confirms the breakout, positions can be opened with a stop loss behind the local low.