The accumulated Swing Index is a complex trend/momentum indicator first developed in 1978 by J. Welles Wilder, Jr. It was developed for the futures market for stocks indexes, but we have made a number of modifications to the indicator to make it applicable to the FX market as well.
I am not going to lie to you, the Accumulation Swing Index is complicated! Hopefully, your FX Trading platform can automatically calculate this for you, but for those willing to persist here are the calculations.
The ASI indicator needs two days trading data to be calculated if you are using daily prices. First complete step 1 by calculating the absolute values of the following (note absolute value is the same as the modulus so turn any negative numbers into positive).
Step 1
High today – close price of previous period; and
Low today - close price of previous period.
Call the largest of these two variables K
If K in Step 1 is High today – close price of previous period, then calculate:
R = (High today – close yesterday) - .5(low today – close today) + .25(close yesterday – open yesterday)
If K in Step 2 is Low today - close price of previous period, then calculate:
R = (today low – close yesterday) - .5(high today – close today) + 0.25(close yesterday – open yesterday)
Once you have calculated R then calculate the ASI as follows:
ASI = ((50*K/M)*((today close - close yesterday)+.5(today close - open today) + 0.25(close yesterday - open yesterday)/R)
Where we set M as 3000 for the FX Market. Don't worry too much about why this number is set to 3000 and what it represents, it's meant for the stock market to pick up maximum swings, we just need to set it to a level that is high enough such that 50*K>M.
Once you have finished the first 2 bars in the time series you have move forward 1 bar until you generate the series which can be plotted as a line chart. This makes up the ASI index as pictured below. Then create a 2-day exponential moving average (EMA) for this time series. If your FX Trading Platform does not have the ability to create the ASI and the EMA for the ASI, then it can be done on excel using the formulas above.
Trading the index is much more straight forward compared to calculating it. Use the following rules
Long positions
Buy (enter long) if the current day close is greater than yesterday’s 2-day EMA.
Close (sell long) if current day close is less than yesterday’s 2-day EMA
Short positions
Enter short (short sell) if the current day close is less than yesterday’s 2-day EMA
Close Short (cover) if the current day close is greater than yesterday’s 2 day EMA
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