ASI was created by Wales Wilder as an ordinary fluctuations
indicator that gets signals from previous maximums and minimums of
price. Once, Wilder said: "Somewhere amidst the maze of Open, High, Low
and Close prices is a phantom line that is the real market." What helps
us reveal this phantom line is the cumulation index.
In his book "New Concepts in Technical Trading Systems", Wilder
describes the indicator this way: "When the Index is plotted on the
same chart as the daily bar chart, trend lines drawn on the ASI can be
compared to trend lines drawn on the bar chart. For those who know how
to draw meaningful trend lines, the ASI can be a good tool to confirm
trend-line breakouts. Often erroneous breaking of trend lines drawn on
bar charts will not be confirmed by the trend lines drawn on the ASI.
Since the ASI is heavily weighted in favor of the close price, a quick
run up or down during a day's trading does not adversely affect the
With the ASI attempting to show the "real market," it closely
resembles actual prices. This allows usage of classic
support/resistance analysis on the ASI. Standart analysis involves
looking for breakouts, new highs and lows, and divergences. Wilder
points out the following characteristics of ASI:
It gives quantitation parameters of price changing;
It shows the turning points of short-term changing;
It gives a possibility to understand the real power and trend of the market.