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How to use the Accumulative Swing Index in trading

How to use the Accumulative Swing Index in trading

The Accumulative Swing Index (ASI) is a trendline representing the running total of an oscillator called the Swing Index, first described by Webb Wilder in his book, “New Concepts in Technical Trading Systems.” The Swing Index itself compares the price data from the current period and the preceding period to quantify the positive or negative “swing,” which can be understood as a measure of directional velocity in a price. 

The Swing Index is used by swing traders for a brand of active trading that is not frequent enough to be categorized as day-trading but generally follows short-term trends. Swing trading can describe long or short positions traded on upswings and downswings of a security or index, and these positions are generally held from one day to two weeks. These are generally momentum investments, which traders enter after perceived confirmation of a trend, and close out when there seems to be confirmation of the end of the trend.

The price points used for comparison in the ASI are the standard prices used to construct candlestick charts: opening, closing, high, and low. The differences between the two days’ prices are plugged into a formula, which gives additional weight to certain numbers depending on how they rank for importance in a given situation. The Index number that results is between 100 and -100, with a positive number indicating momentum towards an increasing price and a negative number indicating momentum towards a decreasing price. 

If a security is in a downtrend and then swings higher to break the ASI trendline, a trader may consider this the reversal of the trend and bet that the security may break to the upside, potentially buying the security or exploring call options as a result. The reverse may also be true: if the security's price breaks the ASI trendline in the other direction, it could be a sign that the security is set to break to the downside, so a trader may explore selling the security, selling it short, or exploring put options.

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While the Swing Index only uses data from two consecutive periods (two days, generally), and is expressed as a number, the Accumulative Swing Index is a line representing a running total of the Swing Index numbers. The ASI adds or subtracts the current SI from the previous ASI value, and the resulting trend line gives traders another layer of information to use for spotting or confirming swings and trends. 

Traders use technical indicators like the Accumulative Swing Index to make predictions about future prices. They verify how well a specific indicator works for a particular security. The calculation of the odds of success under similar market conditions is the best way to go. 

Technical analysis is more popular than ever, but it’s important to remember that there is no single indicator that works well for all securities. Technology allows us to not only see and share trading information more quickly than ever before, but to automate trades using a disciplined technical strategy we define. Artificial intelligence tools from Tickeron can aid traders with trade ideas, help analyze signals to execute advantageous trades, and assist investors with making rational, emotionless, and effective trading decisions.

Keywords: swing trading, Welles Wilder, Swing Index, momentum indicators, Futures Trading,