ASI is a momentum-based technical indicator designed to assess the strength of a trend. Unlike traditional oscillators, which focus solely on price movements, the ASI considers both price and volume. By combining these two critical factors, it provides a holistic view of market dynamics.
Calculation Methodology
The ASI’s calculation involves several steps:
- Compute the True Range (TR): The difference between the current high and low prices.
- Calculate the Price Change (PC): The difference between the current close and the previous close.
- Determine the Directional Movement (DM): Positive if the current close is higher than the previous close, negative otherwise.
- Compute the Raw ASI Value: Multiply the TR by the DM.
- Smooth the ASI using an exponential moving average (EMA).
Key Components
The ASI consists of two lines:
- BULLISH Line: Represents buying pressure.
- BEARISH Line: Reflects selling pressure.
Trend Strength Assessment
Understanding Histogram Bars
- Positive bars indicate bullish strength.
- Negative bars highlight bearish dominance.
Assessing Buyer and Seller Strength
- Observe the ASI’s behavior during price rallies and corrections.
- Strong buyers lead to sustained positive bars.
Advanced Techniques
Divergence Patterns
- Look for divergences between price and ASI.
- Anticipate trend reversals.
Multiple Timeframes Analysis
- Confirm ASI signals across different timeframes.
- Enhance accuracy.
Practical Tips
- Filter out false signals by considering the overall market context.
- Monitor ASI behavior during major news releases.
- Adjust sensitivity based on asset volatility.
How to Trade with Absolute Strength Indicator
Buy Entry
- Look for the blue signal line of the ASI to cross above the red signal line.
- This indicates the start of a bullish trend.
- Entry Point: Open a BUY position.
- Stop Loss: Set your stop loss 3 pips below the previous swing low.
- Take Profit: Aim for a reward-to-risk ratio of 1.5:1 or use a fixed profit target (e.g., 45 pips on a 15-minute chart).
- Exit Signal: If the red signal line crosses above the blue signal line, consider closing the position with a profit.
- As long as the blue signal line remains above the red signal line, continue holding your BUY position.
- This confirms the ongoing bullish momentum.
Sell Entry
- Observe the red signal line crossing above the blue signal line.
- This suggests the start of a bearish trend.
- Entry Point: Initiate a SELL trade.
- Stop Loss: Place your stop loss 3 pips above the previous swing high.
- Take Profit: Consider a reward-to-risk ratio of 1.5:1 or use a fixed profit target (e.g., 25 pips on a 5-minute scalper chart).
- Exit Signal: If the blue signal line crosses above the red signal line, exit the position.
- The height of the histogram bars reflects the strength of the trend.
- Evaluate the BUYERS’ and SELLERS’ strengths in the market.
- Use this information for additional confirmation in your technical analysis.
Absolute Strength Indicator Settings
Conclusion
The absolute Strength Indicator for MetaTrader 5 is a potent ally for traders navigating complex financial markets. By blending price and volume data, the ASI provides a comprehensive view of trend strength, empowering you to make informed decisions. Remember, it’s not a crystal ball, but rather a lens through which you can decipher market dynamics. As you explore its nuances, adapt your strategies, and collaborate with fellow traders, may your trading journey be filled with growth and success.
Recommended MT5 Brokers
XM Broker
- Free $50 To Start Trading Instantly! (Withdraw-able Profit)
- Deposit Bonus up to $5,000
- Unlimited Loyalty Program
- Award Winning Forex Broker
- Additional Exclusive Bonuses Throughout The Year
>> Sign Up for XM Broker Account here <<
FBS Broker
- Trade 100 Bonus: Free $100 to kickstart your trading journey!
- 100% Deposit Bonus: Double your deposit up to $10,000 and trade with enhanced capital.
- Leverage up to 1:3000: Maximizing potential profits with one of the highest leverage options available.
- ‘Best Customer Service Broker Asia’ Award: Recognized excellence in customer support and service.
- Seasonal Promotions: Enjoy a variety of exclusive bonuses and promotional offers all year round.
>> Sign Up for FBS Broker Account here <<
(Free MT5 Indicators Download)
Click here below to download: