An author of Accumulative Swing Index is Welles Wilder. Accumulative Swing Index was purposes to analyze fluctuations of futures contracts, but it also suits to analyze currency and stock trading. Mr. Wilder said, "Somewhere amidst the maze of Open, High, Low and Close prices is a phantom line that is the real market." Accumulative Swing Index exactly attempts to find out that phantom line.
In his book "New concepts in technical trading systems" he says: “If ASI lays on the same day chart, comparison with chart's lines can be made along the tendency shown by the indicator. For someone, who knows how to draw meaning trend's line, this indicator can serve as a nice tool confirming lines breaking Forex trend. Wrong break ups will not be confirmed by relevant lines in the indicator's area. Since to a greater extent ASI uses Close prices, intraday up and down movements do not influence indicator's index value heavily.”
Essentially, indicator represents a certain amount of funds with incrementing total index value of fluctuations (Swing Index).
Accumulative Swing Index chart tries to show a real market situation and therefore it resembles price chart a lot, and besides, performs as a confirmation tool. This resemblance allows using resistance/support levels in the analysis of index. Analysis reveals break ups of new Lows, Highs and discrepancies.
Wilder lists following features of the indicator:
ASI provides quantity data (parameters) of price fluctuations;
It also provides turning points of short-term fluctuations;
ASI allows determining market direction and its real strength;
Signals for purchase
When descending trend's line breaks down or price is consolidated, the signal is above resistance line.
Signals for sale
When ascending trend's line breaks down price is consolidated, the signal is below support line.
Thus, Accumulative Swing Index is best when used as a supplementary tool along with other technical indicators for proving trade signal.
In his book Welles Wilder represents index as follows:
ASI(i) = ASI(i-1) + SI(i),
ASI (i) — Current ASI value
ASI (i-1) — ASI value at previous bar
Swing Index — is an indicator of technical analysis, which analyzes short-term price movement and helps to define actual currency price by matching current prices (Open, Close, High, Low) with the prices for previous periods.