Developed by Welles Wilder in his popular technical analysis book New Concepts in Technical Trading Systems, the Accumulative Swing Index (ASI) is mainly used as a divergence and confirmation tool, but can be used for buy and sell signals as well.
It was designed to be used for futures trading, but can be used for stock trading and currency trading too. Basically, the Accumulative Swing Index is a running total of the Swing Index (see: Swing Index).
The chart below of gold futures shows the Accumulative Swing Index:
Accumulative Swing Index as a Confirmation Tool
In the chart shown below, the Accumulative Swing Index confirmed Gold's downtrend. Subsequently, when Gold broke the downward trendline, the Accumulative Swing Index confirmed the trendline break as well.
Similarly, the upward move in the Gold futures contract was confirmed by the Accumulative Swing Index and the upward trendline break was confirmed too.
Potential Buy Signal – Accumulative Swing Index
A trader might consider a buy signal when the Accumulative Swing Index breaks above a downward trendline or, in a price consolidation period, above resistance.
Potential Sell Signal – Accumulative Swing Index
Contrastly, a trader might consider a sell signal when the Accumulative Swing Index breaks below an upward trendline or, in a price consolidation period, below support.
In summary, the Accumulative Swing Index is best used as a confirmation tool with other technical indicators and charting patterns (see: Support & Resistance).
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