The Accumulative Swing Index

05/17/00 11:49:47 AM

by Jason K. Hutson

Rather than using the closing prices alone to determine market trends, the accumulative swing index incorporates the relationship between the open, close, high, and low of each day's trading to give a more complete picture of market activity.

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Developed by J. Welles Wilder, the accumulative swing index (ASI), allows you to plot points derived from the swing index (SI) to get a more sophisticated version of the basic price chart. Welles used five comparisons:

1. Today's close (C 2) compared to yesterday's close (C 1)
2. Today's close (C 2) compared to today's open (O 2)
3. Today's high (H 2) compared to yesterday's close (C 1)
4. Today's low (L 2) compared to yesterday's close (C 1)
5. Yesterday's close (C 1) compared to yesterday's open (O 1)

to develop the SI. Each of these five factors was weighted and incorporated into a single formula:

SI = 50[C 2 -C 1 + 0.5(C 2 -O 2 ) + 0.25(C 1 -O 1 )/R](K/T)

Where K = the largest absolute value of:
1. H 2 -C 1
2. L 2 -C 1

T = Limit move in one direction. (T is used for the daily limit value to avoid confusion with daily low.)

Calculating the value of R requires further work. First, determine which is the largest absolute value of:

1. H 2 -C 1
2. L 2 -C 1
3. H 2 -L 2

If the largest is 1, then R = (H 2 - C 1 ) - 0.5 (L 2 - C1) + 0.25 (C 1 - O 1 )
If the largest is 2, then R = (L 2 - C 1 ) - 0.5 (H 2 - C1) + 0.25 (C 1 - O 1 )
If the largest is 3, then R = (H 2 - L 2 ) + 0.25 (C 1 - O1)

Once the SI is calculated, it is simply added on to the running total of the SI. Initially starting at SI = 0, plus days are added to the cumulative total, while minus days are subtracted. This gives you a line similar enough the basic price chart that it can be used in its place, and Welles believed that trends, breakouts, and the like could be more accurately predicted from the ASI than the basic price chart.

This article was taken in part from: Stocks & Commodities V13 (470-472): The Accumulative Swing Index by Bruce R. Faber.

Jason K. Hutson

Traders.com Staff Writer. Enjoys trendlines, support and resistance, moving averages, RSI, MACD, ADX, Bollinger bands, parabolic SAR, chart formations, and volume analysis.

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ACCUM SWING INDX

The Accumulative Swing Index

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