Acceleration / Deceleration Oscillator

The Acceleration / Deceleration Oscillator, commonly known as the Accelerator Indicator, is a technical indicator developed by Bill Williams to measure the strength of changes in the price of an asset.

The idea behind this indicator, according to Bill Williams, is that price is the last thing that changes. First they change the strength of their variations and lastly, the price turns. For example, before replacing the market trend bullish price rises each time with less force (deceleration) until finally the bullish trend ends and begins a downtrend.

The appearance of the indicator is simple. A histogram with bars that can be above zero or below zero. And, whose color can be green or red. Positive values ​​(above zero) indicate an upward trend and negative values ​​(below zero) indicate a downward trend.

How is the Acceleration / Deceleration oscillator calculated?

To calculate the Acceleration / Deceleration oscillator we will use the Amazing oscillator as a base. So, the formula for the Acceleration / Deceleration oscillator is:

AC = AO – 5-period MMS (AO)

To take into account the following considerations:

  • AO =Awesome Oscillator, in English Awesome Oscillator (AO)
  • MMS =Simple Moving Average
  • AC =Acceleration / Deceleration Oscillator, commonly known as Accelerator Oscillator (AC)

In such a way that the Acceleration / Deceleration oscillator is the result of subtracting from the value of the Amazing oscillator, the value of the simple moving average of the last five periods of the Amazing oscillator. In much simpler words, and to understand the calculation well, we will divide it into three phases:

  1. Amazing oscillator calculation. See Amazing oscillator calculation
  2. Calculate the 5-period simple moving average of the Amazing oscillator.
  3. The values ​​obtained in phase 1 and 2 are subtracted.

The color of the histogram bars depends on:

  • Green bar:The value of the current bar is greater than that of the previous bar. That is, if it is above zero, the bar will be green if its size is greater than the previous bar. And, if it is below zero, the bar will be green if its size is smaller than the previous bar.
  • Red bar:The value of the current bar is less than that of the previous bar. Or what is the same, if it is above zero, the bar will be red if its size is less than the previous bar. And, if it is below zero, the bar will be red if its size is bigger than the previous bar.

Trading with the Acceleration / Deceleration oscillator

As with other Bill Williams indicators such as the Alligator indicator or the fractal indicator, it is recommended to use them together. However, whether it is used alone or as a complement to other indicators, there is an unbreakable rule that we must know:

Long positions are never opened if there is a red bar and short positions are never opened if there is a green bar.

That said, there are several uses that we can make with this indicator:

·      Zero line crossings

If the indicator is above zero, the trend is bullish. Therefore, if the indicator is below zero and crosses the zero line upwards, it is a long position signal. For example:

Conversely, if the indicator is below zero, the trend is down. That is, if the indicator is above zero and crosses the zero line downwards, it is a short position signal. For example:

In order to close the positions the opposite fact can be adopted as a rule. When there is a long position signal, short positions are closed. And, when there is a short position signal, long signals are closed.

The color change of the bars can also be adopted as a rule. For example, the case of a long position. It opens when the oscillator crosses the zero line upward and closes when (despite being above zero) a red bar appears.

·      In combination with other Bill Williams indicators

It is the most recommended option. This indicator was built in order to be part of the Bill Williams trading system. Therefore, the author does not recommend using it alone. An example of a combination would be to use it with the Alligator indicator in such a way that the operational rules are:

The three Alligator indicator averages are below the price (uptrend) and the acceleration oscillator crosses the line from zero to the upside. Long position signal. For example:

The three averages of the Alligator indicator are above the price (downtrend) and the acceleration oscillator crosses the zero line to the downside. Short position signal. For example:

·      Red and green bars

Finally, there is a third option. If the indicator appears with a red bar (even if it is above zero) it is a short position signal. If the indicator draws a green bar (even if it is below zero) it is a long position signal. This way of using it, despite existing it is not a good option.

If we use it based on these last rules, the indicator can give many signs that end in losses. And consequently, we can lose a lot of money trading . In any case, if any trader decides to operate with these rules, they must first do a test to verify that it is profitable as a trading system .

 

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