All about the Accelerator Decelerator Oscillator indicator
We all know that the trend is our friend. And therefore, the sooner you can successfully determine the trend, the more profit you can extract from it. There are many different ways to determine the origin of a new trend.
But we must proceed from the fact that price is the last element that changes. Before the price changes, the driving force of the market changes, and before it changes its direction, the acceleration of the driving force should slow down to zero. Then it begins to accelerate in the other direction, until the price starts to change its direction.
The Accelerator Decelerator Oscillator (AC) was developed by renowned trader Bill Williams specifically to provide early signals of a change in the force that drives the market. And today we’ll look at how to use this indicator.
Currency pairs: any
Trading time: around the clock
Recommended brokers: Alpari, RoboForex, InstaForex
What is this indicator?
For the first time, a description of the slowdown / acceleration indicator appeared in B. Williams as a measurement of the third factor in his theory of trade chaos. This indicator is a logical continuation of the copyright indicator Awesome Oscillator.
Accelerator Decelerator Oscillator or AC (Oscillator Acceleration / Slowdown) is one of the tools developed by renowned trader Bill Williams. The purpose of this tool is to identify points of acceleration or deceleration of prices and a demonstration of positive or negative dynamics. This indicator is one of the elements of the Bill Williams Profitunity trading strategy.
Williams noted that market prices are constantly changing. It is important not only to see trends, but also to build work based on price behavior, from the beginning of a slowdown in the current trend to the start of a new one.
When analyzing the processes occurring on the market, Bill Williams said that prices before the correction or reversal reduce the rate of change, and when the trend intensifies, then the rate of change in prices increases. AC changes direction after a change in driving force, which usually indicates a possible change in trend.
Acceleration Deceleration Oscillator is considered a leading indicator, since before turning, the price should reduce the speed in the current direction, which means that you need to have data on the acceleration of the price (positive or negative). When the dynamics are slowing down, the histogram of the indicator should unfold first, and when accelerating the current dynamics, show growth.
Accelerator Oscillator is able to predict the phases of price dynamics quite accurately in advance, which is valuable for traders - its advantage lies in leading readings.
In most technical analysis programs, the AC indicator graph is plotted as a histogram, with periods of growth being drawn with green bars in the histogram, and periods of decline with red bars.
A feature of this indicator is the redrawing of the last bar. Until the candle is closed, the last bar of the indicator can change color, so it is very important to work with AC after closing the bar.
The zero line is essentially the place where the driving force is balanced with acceleration. If AC is above zero, then it is usually easier to continue moving up. Unlike the Awesome Oscillator, crossing the zero line is not a signal. The only thing that needs to be done to control the market and make decisions is to monitor the color change.
You need to remember: using speakers, it is undesirable to buy when the current column is colored red, and it is undesirable to sell when the current column is colored green.
Standard parameters 5-34 were proposed by the AC indicator developer, since, in his opinion, they give a minimum of false signals on medium volatility assets. For intraday trading, it is recommended to select the parameters individually.
The zero baseline is dynamically shifted depending on the indicator values. This line means the zone where the driving force is equal to the current acceleration. The intersection of this line with the histogram of the AC indicator is not a trading signal, this fact only reduces the number of columns necessary for the formation of a trading signal.
The AC histogram is the difference between the 5/34 histogram of the driving force (Awesome Oscillator) and the 5-period simple moving average taken from this histogram:MEDIAN PRICE = (HIGH + LOW) / 2
AO = SMA (MEDIAN PRICE, 5) - SMA (MEDIAN PRICE, 34)
AC = AO - SMA (AO, 5)
MEDIAN PRICE - median price;
HIGH - maximum bar price;
LOW - minimum bar price;
SMA - Simple Moving Average
AO - Awesome Oscillator indicator.
Now let's figure out how to apply the indicator in real trading.
Generation of buy or sell entry signals
A buy signal occurs when two consecutively growing green bars. In this case, it is recommended to place a pending order several points above the high of the previous candle. Similarly for sales, you need to wait for two consecutively falling red bars and place a pending order several points below the low of the previous candle.
In the case when the AC indicator is below zero, the presence of three consecutively growing green bars can also serve as a buy signal. The same is true for sales.
It must be remembered that the signals of the AC indicator are only confirming in nature, and the main signal is always touching the first fractal. Only after such a touch can orders be placed according to the signals of the AC indicator.
If a signal appears on the AC indicator, but before the pending orders are triggered, the histogram changes color, the trading signal is canceled.
It is important to remember that it is best to use these input signals once each time the indicator crosses the zero line. When we opened a trade after crossing the AC zero line, the next trade can only be opened at the reverse intersection.
Using AC as a filter for deals
Changing the color of the AC indicator is very important. Green color, regardless of the direction of the indicator, warns against short positions, and red, respectively, from long ones.
To enter the market in the direction of its driving force, it is necessary to take into account both the value and the color of the AC indicator. Moreover, the graphs below H4 have a very large number of false signals.
Quite effective filtering is obtained when trading intraday and using the AC indicator on daily charts.
The AC indicator can be used as a flat indicator: at low volatility, small bars appear near the zero line in the histogram.
Periods of flat or low volatility are clearly visible, especially on the charts of low timeframes.
Williams AC Trading
Unlike the Awesome Oscillator, crossing the zero line is not a trading signal in itself, but it means a change in the pattern that must be formed to open a deal. Positive values are a sign of bullish market sentiment.
Similarly, negative values indicate a bearish mood in the market. Williams emphasized that with AC, you should not buy if you see the red bar, and should not sell if you see the green bar. You also need to monitor both the color of the indicator and whether the values are above or below zero.
Here is a simple summary of the rules for the Accelerator Oscillator strategy, as originally prescribed by Bill Williams: if you buy above zero or sell below zero, then all is well. You only need two consecutively growing bars to open a deal. That is, two green rising bars above zero is a buy signal, and two red falling bars below the zero line is a sell signal.
Williams himself suggested using the Alligator Indicator as the main indicator. In this case, Awesome Oscillator and Accelerator Oscillator can work as more sensitive tools for confirming signals from the Alligator.
The Accelerator Oscillator indicator, like any other, has its pros and cons. The obvious advantage of the indicator is its simplicity - it contains only histogram columns, which greatly simplifies the analysis. There are no curves that might intersect with the histogram, and other elements that are difficult to perceive.
Another plus is that this indicator means working with any tools and on any time scale. A significant advantage of Accelerator Oscillator is that it gives very strong signals for operation.
Disadvantages of Accelerator Oscillator
A big minus 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, then in this Accelerator Oscillator is significantly inferior to it.
Another disadvantage of the indicator can be considered a smaller number of signals and capabilities than any other oscillator. For example, Stochastic allows you to trade from overbought and oversold areas or from the intersection of the signal and main lines, and MACD, moreover, makes it possible to use divergence.
Despite this, the Accelerator Oscillator is worthy of attention. Often, in combination with other indicators, it provides pretty good results.
Bill Williams developed the Accelerator Oscillator to provide the earliest signs of a possible trend change, rightly assuming that this would give traders a significant market advantage. Thus, despite the fact that the Accelerator Decelerator Oscillator itself generates rather weak signals, in combination with other indicators it is a very useful technical analysis tool.