The Accelerator Oscillator, developed by renowned technical analyst Bill Williams, is one of five key market measurements designed to enhance technical analysis
and is available on MT4 and MT5 trading platforms.
While the Awesome Oscillator helps traders gauge market momentum, the Accelerator Oscillator goes a step further by measuring the acceleration or deceleration of that momentum.
This tool provides early signals of potential trend shifts, helping traders make more precise decisions about market entry and exit points.
How the Acceleration Oscillator Indicator Predicts Price Movement
Acceleration/Deceleration Technical Indicator (AC) measures acceleration and deceleration of the current driving force, gauging an acceleration change in momentum.
The direction of this indicator will always change before the price, meaning that looking at the indicator’s momentum instead of just the price gives a timing advantage.
The Acceleration Indicator is seeking to go one step further and detect early changes in momentum – that is, when momentum is accelerating or decelerating.
Calculating the Acceleration Oscillator
The Acceleration Oscillator actually comes from the Awesome Oscillator (AO), one of the indicators from Bill Williams’.
The Awesome Oscillator compares a 5-period time frame to a 34-period time frame, with an aim to gain an insight into market momentum:
AO = SMA (MEDIAN PRICE, 5) – SMA (MEDIAN PRICE, 34)
Where the AO is the 34-period simple moving average (SMA) of the median price subtracted from the 5-period SMA of the median price.
Then the Acceleration Oscillator is derived from the Awesome Oscillator, by subtracting a 5-period SMA of the AO from the AO:
Acceleration Oscillator = AO – SMA5(AO)
The Trading Strategy Using the Acceleration Oscillator
As shown below, the default colours for a up-value and down-value are in green and red respectively.
The nought line represents the point where the driving force is balanced with acceleration.
This means that when the indicator is above the zero line, it is easier for acceleration to continue increasing.
Conversely, when the indicator is below zero, it is easier for deceleration to increase.
However, unlike the Awesome Oscillator, crossing the zero line is not a trading signal on its own.
Instead, it indicates a shift in momentum that can provide additional confidence in placing a trade.
Positive values suggest bullish market conditions, while negative values indicate bearish sentiment.
According to Bill Williams, traders should avoid buying when the indicator shows a red bar and avoid selling when the indicator shows a green bar.
Additionally, traders should pay attention to both the colour of the indicator and whether the values are above or below zero, as previously mentioned.
Bill Williams' Trading Rules for the Accelerator Oscillator:
If buying above zero or selling below zero, you are trading with the momentum.
- To confirm a trade, wait for two consecutive bars in agreement.
- Buy Signal: Two green columns in a row above zero.
- Sell Signal: Two red columns in a row below zero.
If buying below zero or selling above zero, you are trading against the momentum.
- This requires extra confirmation, so wait for three consecutive bars to confirm the trade.
- Sell Signal: Three consecutive red bars above the zero line.
- Buy Signal: Three consecutive green bars below the zero line.
By following these rules, traders can use the Accelerator Oscillator more effectively to align their trades with market momentum.
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