How To Use The Accelerator Oscillator

Each of us understands that the earlier one manages to "catch the trend", the bigger the potential profit will be. In the modern financial market model, price is not the cause of change, but the result, and this element of the system changes last.

The driving force of the market changes first — before that reversal it must slow down to almost nothing and only then starts to accelerate already in the new direction. Bill Williams included a special Accelerator/Decelerator Oscillator in his "Trading Chaos" to get the very first signals of market intent to reverse - it must give the very first signals.

Description of Accelerator Oscillator

The Accelerator/Decelerator (AC) oscillator is one of the technical analysis tools created by Bill Williams.

The essence of the oscillator is to see the approach of changes in the price of an asset by changes in the market driving force, or even earlier. Bill Williams proceeded from the fact that before the market driving force changes, its acceleration falls to zero, then develops in the other direction. It is the moment when the acceleration slows down that the Accelerator captures. That is, the Acceleration/Deceleration oscillator is designed as a strong leading oscillator.

Logic Behind the AC indicator

To calculate the AC indicator, we should introduce the concept of a typical price. The typical price is the sum of the maximum, minimum, and closing price of the current candlestick. It is considered that the typical price changes more smoothly than the close price. The calculations based on the typical price have similar properties. The AC indicator uses the typical price in its calculations. The first step is to calculate the Exponential Moving Average (initially a Simple Moving Average has been used, but the Exponential one is smoother) from the typical price with the period of 5. Such Moving Average is called fast. Then we should calculate the EMA from the typical price with the period of 34, thus obtaining a slow MA. Then you must subtract the value of the slow EMA from the value of the fast EMA. Thus, you will receive the value of AO (Awesome Oscillator). Next, you should calculate the fast Moving Average of AO. The final step in calculating the AC indicator will be the difference between AO and the fast MA from AO.

The direction of the AC indicator movement shows the market driving force. It is believed that to reverse the trend, its driving force must first slow down (the indicator stops updating its extremums), then reverse ((lines of the histogram become less than they were before). The final reversal effect brings the acceleration of the driving force in the direction of the recent reversal (the indicator histogram crosses the zero value).

It should be noted that Bill Williams himself suggested using periods 5 and 34, but practical use has revealed a large number of false signals with such parameters, so each trader determines his parameters as he gets to know the oscillator.

Accelerator Oscillator Signals

In many oscillators for forex, the zero line crossover itself is a signal, but one of the characteristic features of the Accelerator/Decelerator oscillator is that the zero line crossover is not a signal. Therefore, if the oscillator readings are above zero, then the market is dominated by buyers, and if below, then sellers prevail.

By its interpretation, AC is one of the simplest indicators, practically, it is possible to follow only the change of color of histogram bars and make the right decisions. In particular, it is not recommended to buy if the current bar of the histogram is red or not recommended to sell if the current column is green.

When trading in the direction of the driving force, if the Accelerator/Decelerator oscillator is placed above zero for buying or below zero for selling, the signal for buying will be two green bars in the ascending sequence and two red bars in the descending sequence.

When trading against the driving force, i.e. if the indicator is placed below zero on buying and above zero on selling, the signal for buying will be three green columns in the ascending sequence, below the zero level or, for selling, three red columns in the descending sequence, above the zero level.

Accelerator Oscillator in the Trading Platform

Oscillator Accelerator is a quite popular indicator, so it is pre-installed on all trading platforms. In MetaTrader 4, it is located in the list of Bill Williams indicators in the navigation panel on the left.

The oscillator is a histogram of red and green bars, the zero line, and positive and negative values. Interpretation of colors is classical - green shows the ascending price direction, red - descending.

Accelerator Oscillator Strategies

The Accelerator Oscillator should be used mainly as a complementary indicator to other technical analysis tools. Also, when using the AC, it should be remembered that it redraws the last column, so you should not open a position without making sure of the complete alignment of the sequence.

Accelerator Oscillator is an integral part of strategies using other Bill Williams indicators, but it is often used with other indicators, as well, and quite effectively. One of the popular ways to use Accelerator Oscillator together with Awesome Oscillator and Stochastic. The strategy is implemented in time frames H1 and higher. AO and AC are set with preset parameters, Stochastic is set with parameters 8, 3, 3, prices by "Close/Close", simple MA.

Long positions are opened when Stochastic %K crosses the 20 level from bottom to top, and both Williams indicators will be colored green. Short positions are opened when the %K line crosses the 80 level from above downwards, while the Awesome and Accelerator indicators will be colored red. Accelerator Oscillator can also be used with Stochastic only. The strategy is implemented in time frames of H4 and larger. Stochastic is set with parameters 5,3,3 and levels 20 and 80, the AC oscillator with standard settings.

A buy signal is formed when the Stochastic line crosses the signal line upwards, and the AC bars are colored green. Correspondingly, a sell signal is formed when the blue line crosses the red line from top to bottom and the AC columns are colored red.

The other strategy adds two 10-period Moving Averages to the Accelerator Oscillator and the Stochastic, of which one is plotted at minimum prices and the other at maximum prices. Stochastic is set with parameters Accelerator Oscillator, AC oscillator is standard. The strategy is implemented in time frame H1 and higher.

The signal to buy will be the placement of the signal line of Stochastic below the main line and their placement below the level of 50. The price should break out the MA built on the highs. Next, you need to monitor the dynamics of the trade and completely close the position when the Accelerator Oscillator indicator forms two red bars.

The signal to sell will be the placement of the signal line of Stochastic above the main line, and both of them should be placed above the 50 level. The price should break out the MA built on the lows. The trade is then monitored and is completely closed when the Accelerator Oscillator forms two green bars. Another strategy implies using the Accelerator Oscillator and the Awesome Oscillator along with the HMA. Williams' indicators are set with standard settings, HMA with period 34. It is preferable to use the colored HMA in this strategy, as the color change of this line shows the growth better.

Long positions are opened when Awesome and Accelerator Oscillator are colored green and are above zero level, and the HMA shows the growth with the direction and the corresponding color. Short positions are opened when both Williams' indicators are colored red and are below zero level, while the HMA indicator line shows a decline.

The other strategy uses an Accelerator Oscillator, Stochastic (5,3,3), and a Simple Moving Average with a period of 33.

Buying is done when the AC is placed above the zero line and colored green, while Stochastic is placed above the center level of the Accelerator Oscillator and the price is above the SMA. Selling is carried out when the AC is placed below zero, Stochastic is placed under the central AC line, and the price is under the sliding AC line.

A popular method of applying the Accelerator Oscillator indicator is the strategy with Parabolic SAR, which also uses an Awesome Oscillator. Williams indicators are set with standard settings, as well as the Parabolic SAR indicator.

Buy positions are opened, when Parabolic SAR is placed below the price, and Awesome and Accelerator oscillators are colored green. Short positions are opened, when Parabolic SAR is placed above the price, and Awesome and Accelerator oscillators will be colored red.

Bill Williams has developed a strategy for his indicators, which is used by many traders. It uses the Alligator, which determines the start of price movement and its direction, Accelerator Oscillator is needed to determine acceleration or deceleration of price, an Awesome Oscillator marks the reversal of price, and such indicator as Fractals are used to determine entry points. The strategy is implemented in the time frame of H1 and higher.

The entry into trading on this strategy is carried out when the market is still in a calm state, the subsequent actions are performed with an open position. Therefore, when starting work, all Alligator lines should be placed on one plane in a stable condition, Accelerator Oscillator and Awesome Oscillator should oscillate near the zero level. In this situation, the trader determines the entry points according to the Fractals and opens the positions according to the breakout of the last fractal.

Accelerator Oscillator can be used in a strategy with only one Alligator. In this case, the signals are marked by the Alligator indicator. It can be a crossover of the MAs, which should confirm the Accelerator Oscillator. It is not recommended to use Accelerator Oscillator as the only trading tool, although such strategies do exist. One of such strategies involves trading in the time frame H4 and higher, and its essence is to open a position on certain bars.

For example, when the 61st bar closes, a position to buy is opened on the 62nd bar, provided the AO is placed below the zero level. Positions to sell are opened on the 62nd bar if the oscillator is placed above the zero level.

According to the other version, positions are opened by the Accelerator Oscillator indicators of the previous 80 bars. Positions for buying are opened after the 80th bar closes, on the 81st bar if the value of the Accelerator Oscillator is placed below zero level; positions for selling are opened after the 80th bar closes, on the 81st bar if the Accelerator Oscillator indicator is placed above zero level.

This strategy is often positioned as very simple and profitable, it is not even supposed to use Stop Loss. But in reality, it is impossible to apply it without trading experience, without the support of other tools. The Accelerator Oscillator gives insufficient information for a full-fledged strategy.

Advantages and Disadvantages of the AC Indicator

The Accelerator Oscillator indicator, like any other, has its pros and cons. The clear advantage of the indicator is its simplicity - it has only histogram bars, which greatly simplifies the analysis. There are no curves, which can intersect with the histogram and no other complicated elements for perception.

Another advantage is that the indicator can work with any asset, and in any time frame. A significant benefit of the Accelerator Oscillator is that it gives very strong signals to work with.

The major disadvantage of this tool is its dependence on other indicators. If, for example, the Relative Strength Index can be used independently and generates fairly reliable signals, the Accelerator Oscillator is significantly inferior in this respect.

Another disadvantage of the indicator can be considered a smaller number of signals and opportunities than any other oscillators. For instance, Stochastic allows trading from the overbought/oversold areas or the crossover between the signal and main lines, while MACD enables using divergence.

Nevertheless, the Accelerator Oscillator is worthy of attention. Often, in combination with other indicators, it brings quite good results.

Conclusions

Accelerator Oscillator can be used for any asset and for any time frame. It is leading and gives simple, clear signals that are quite strong. Its disadvantages are that it is practically inapplicable without other indicators and gives few signals, so its capabilities are limited. But as a complementary tool, Accelerator Oscillator can be used very effectively in many strategies.