Accelerator Oscillator Explained
Accelerator Oscillator was designed by Bill Williams and is considered to be an advancement of the Awesome Oscillator. Known as AC for short, the oscillator has no predetermined settings and oscillates along the zero-line. The Accelerator Oscillator often signals price changes ahead of price itself and is said to be most effective when used in conjunction with the Awesome Oscillator. The AC oscillator is calculated as the difference between the Awesome Oscillator and the 5 period simple moving average from the price chart.
The chart below shows the Accelerator Oscillator applied to price charts.
Accelerator Oscillator on Chart
As the Accelerator Oscillator trades near the 0-line, it is used to depict momentum in prices. When the AC trades above the 0-line, it shows that there is more potential for prices to continue trend higher as and when the Green bars appear which indicate higher closing prices, and when the Red bars appear, it points to lower closing prices and thus point to decreasing momentum.
Similarly when the AC crosses below the 0-line, the decline in momentum is shown by Red bars while the Green bars depict easing momentum when prices are trending lower. The increase or fall in momentum is confirmed when there are two increasingly higher Green bars when the AC is above the 0-line and two lower Red bars when the AC is below the 0-line.
How to trade with the Accelerator Oscillator?
Bill Williams suggested that it is best to trade the AC along with the awesome oscillator.
The rules for trading the AC along with the AO is to first wait for the AO or the awesome oscillator to move from below 0-line and changes from Red to Green. This is the first signal which shows that prices are going to decline. The next step is to then wait for the AC to move below the 0-line triggering the short positions.
Accelerator Oscillator Sell Signal
The above chart shows a sell signal following the Bill Williams’ rules. After the AO switches below the 0-line, the AC then moves below the 0-line and short positions are taken. The trade is exited partially when the AC moves above the 0-line while the AO still remains below the 0-line (indicating a correction in the trend). When finally both the AO and the AC turn above the 0-line, short trades are exited and long trades can be taken.
The next chart below shows the AC/AO buy signal using the same rules.
Besides using the AC with the AO oscillator, other methods could include using a moving average or the Parabolic SAR indicators and using the AC for confluence of trading signals. There is of course, divergence trades that can also be traded using the AC within a few bars and the set ups work on the same general principles of divergence. Traders should however note that the Accelerator oscillator often tends to give false trading signals due to its sensitivity and this should be kept in mind when using the Accelerator oscillator.
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