Acceleration/Deceleration Oscillator - Accelerator Oscillator
Accelerator Oscillator Definition
The Accelerator Oscillator technical indicator measures the acceleration or deceleration of the current market driving force. The principle of operation of the AC indicator is based on the assumption of its creator Bill Williams that before the change of the direction of the price movement, the momentum of its change should fall.
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How to Use Acceleration/Deceleration
The Accelerator Oscillator is an indicator which fluctuates around a median 0.00 (zero) level which corresponds to a relative balance of the market driving force with the acceleration. Positive values signal a growing bullish trend, while negative values may be qualified as a bearish trend development. The AC indicator changes its direction before any actual trend reversals take place in the market therefore it serves as an early warning sign of probable trend direction changes.
The Accelerator Oscillator indicator color changes alone are very important as the current green line (irrespectively of the value) warns against long positions the same way as the red one would against selling.
To enter the market along with its driving force one needs to watch for both value and color. Two consecutive green columns above the zero level would suggest you to enter the market with a long position while at least two red columns below the zero level might be taken for a command to go short.
Fake signals prevail in timeframes smaller than 4 hours.
Acceleration/Deceleration (AC) Oscillator
Acceleration/Deceleration Oscillator Formula (Calculation)
In the Accelerator Oscillator formula the AC bar chart is the difference between the value of 5/34 of the driving force bar chart and 5-period simple moving average, taken from that bar chart.
AO = SMA(median price, 5)-SMA(median price, 34)
AC = AO-SMA(AO, 5)
The Accelerator Oscillator indicator is calculated as a difference between the Awesome Oscillator (AO) and the 5-period moving average of the AO.