Swing Index Indicator Formula, Meaning, Strategy

Swing Index Indicator

Welles Wilder has developed the technical indicator called the Swing Index indicator to determine the real strength and direction of the market by analyzing the high, low, and close prices of a stock. He describes how to create and use the Swing Index in his seminal book “New Concepts in Technical Trading Systems“.

How to Attach the Swing Index Indicator to the Charts?

The Traders can know more about the Swing Index Indicator, then they can find it in the STUDIES section of Zerodha Kite. This is also available in Kite Mobile App. The Limit Move Value is 0.5 and you can set the value of it high and low. You can also check the image below to understand how we attached the Swing Index Indicator to the HDFC Bank share price chart. In this indicator on to any charts like daily, weekly, monthly, or intraday you can attach.

Swing Index Indicator on Zerodha

The Formula of the Swing Index Indicator

SI = 50 × ((Cy – Ct) + (0.5 × (Cy – Oy)) + (0.25 × (Ct – Ot) × R)) × K × T

In the formula, the variables represent the following:

  • Oy: Yesterday’s Open
  • Ot: Today’s Open
  • Cy: Yesterday’s Close
  • Ct: Today’s Close
  • K: The largest of the following values:
  • Ht – Cy: Today’s High minus Yesterday’s Close
  • Lt – Cy: Today’s Low minus Yesterday’s Close
  • R: Based on the largest of the following values:
  • Ht – Cy: Today’s High minus Yesterday’s Close
  • Lt – Cy: Today’s Low minus Yesterday’s Close
  • Ht – Lt: Today’s High minus Today’s Low
  • T: Limit Move Value

Please note that the formula assumes you have correctly calculated the values for Oy, Ot, Cy, Ct, Ht, Lt, and T. Also, be aware that the Swing Index is just one of many technical indicators used in financial analysis and trading strategies.

Interpretation of the Swing Index Indicator

The indicator formula uses high, low, open, and closing prices to calculate these values. When the index line falls below the zero line it represents a fall in the stock’s price. Similarly, when the Swing Index crosses above the zero lines, it represents that a stock’s price is increasing. Also, a small or large swing index value shows the strength of the stock’s price’s increase or decline.

This indicator is an oscillator with values that range from 0 to 100 for up price movements and 0 to -100 for down price movements. Simple buy signals can be generated when the SI line crosses above the zero lines from below. In the same way, a simple sell signal can be generated when the SI line crosses below the zero lines from above.

Swing Index Indicator Formula

How to Trade with the Swing Index Indicator?

  1. First, determine the current trend in the markets by analyzing recent price action or using a moving average indicator like an EMA. If you’re trading with a bullish bias then look to buy when the Swing Index is indicating oversold conditions (below -50).
  2. Conversely, if bearish sentiment is dominating then wait for sell signals on an upwards swing (above +50).
  3. Once in a position – set stops and targets for your trade according to support/resistance levels and the previous swing high/low. Having sharp risk management here will increase your chances of success significantly!
Swing Index Indicator Trading Strategy

Here if the SI crosses below the bottom threshold line it is an ideal signal.

Real-Life Example of a Trade Setup

Here in the example above we have established the trend using a 20 and 50 moving average. As 20 EMA is above 50 EMA the trend is up. Here we will use the Swing Index’s panic bottoms as a buy signal.

FAQ

How do you use a swing index indicator?

A swing index is an effective tool for traders to identify potential support and resistance levels on a chart. It helps in spotting entry and exit points of trades. To use it, the baseline should be plotted using high, low, and closing values first. Then one can add other lines for buy or sell signals accordingly.

What is the swing index strategy?

The Swing Index Strategy is based on identifying buying opportunities when price momentum shifts from a bearish to a bullish trend in the market, as well as picking selling opportunities when price momentum shifts back from a bullish to a bearish trend again. This trading approach involves close monitoring of charts at different time intervals with the help of indicators such as accumulative swings index (ASI), moving averages, etc., for successful implementation of this strategy.

What is the formula for the accumulative swing index?

The Accumulative Swing Index(ASI) calculates long-term movements in an asset’s prices using data collected over several days including open, high, low, and close information about each day’s movement plus the current range being compared against previous bars range further modified by intensity measure calculated from volume information associated with every period analyzed. The general formula would look like this: ASI = ((Current Range/ Previous Bar’s Range)-1)*Intensity Factor+(Previous).

What is the accumulative swing index in forex?

Accumulative Swing Index (ASI) applies similar principles used in Stocks & Futures markets while looking at trends for making profitable trades but tuned specifically around Forex-related strategies where currency pairs become its underlying security instrument instead due to its intense volatility characteristics compared to traditional Stocks & Futures contracts.

Conclusion

Traders can use this to determine the real strength and direction of a stock by analyzing its high, low, and close prices with this Swing Index indicator. In the strength of a stock, traders can confirm if a stock’s current trend will continue or if they are looking for signs of weakness that alert them to possible trend direction changes. Traders and investors can increase their probability of success by employing multiple indicators to confirm trading signals. Traders find the Swing Index indicator as a versatile tool. It can be used by investors and traders to improve their odds of trading.

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Author: Ankita Chakraborty

Ankita has done her Diploma Engineering in Computer Science & Technology. She is pursuing her degree in Engineering and also well experienced in the equity market and real estate related content writing. She is the one who has developed the technical indicators section of our site.

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