The Accelerator Oscillator (AC) is a popular indicator among forex traders, developed by Bill Williams, that helps identify changes in trend momentum. It is an oscillator that measures the difference between the Awesome Oscillator (AO) and its 5-period moving average. The AC is plotted as a histogram, with positive values indicating bullish momentum and negative values pointing to bearish momentum. In this article, we will explain how to use the Accelerator Oscillator in forex trading.
Calculation of the Accelerator Oscillator
The Accelerator Oscillator is calculated by taking the difference between the Awesome Oscillator and its 5-period moving average. The Awesome Oscillator is calculated by subtracting the 34-period simple moving average (SMA) from the 5-period SMA, with each SMA calculated using the median price of the candlestick. The formula for the Awesome Oscillator is:
Awesome Oscillator = SMA(5, Median Price) – SMA(34, Median Price)
The Accelerator Oscillator is then calculated by subtracting the 5-period SMA of the Awesome Oscillator from the Awesome Oscillator itself. The formula for the Accelerator Oscillator is:
Accelerator Oscillator = Awesome Oscillator – SMA(5, Awesome Oscillator)
How to use the Accelerator Oscillator in forex trading
The Accelerator Oscillator can be used in various ways to identify trend momentum changes and trade setups. Here are some of the most common ways to use the indicator:
1. Divergence
Divergence occurs when the price makes a new high or low, but the indicator fails to confirm the move. This is a signal that the trend momentum is weakening, and a reversal may be imminent. In the case of the Accelerator Oscillator, bearish divergence occurs when the price makes a new high, but the AC fails to make a new high. Bullish divergence occurs when the price makes a new low, but the AC fails to make a new low. Traders can use this signal to enter a trade in the opposite direction of the trend.
2. Crossover
Crossover occurs when the Accelerator Oscillator crosses the zero line. A bullish crossover occurs when the AC crosses from negative to positive, indicating that the momentum has turned bullish. A bearish crossover occurs when the AC crosses from positive to negative, indicating that the momentum has turned bearish. Traders can use this signal to enter a trade in the direction of the trend.
3. Histogram patterns
Traders can also analyze the histogram patterns of the Accelerator Oscillator to identify trend momentum changes. A bullish trend is indicated by a series of green bars that are increasing in height, while a bearish trend is indicated by a series of red bars that are increasing in height. Traders can use this signal to enter a trade in the direction of the trend.
4. Support and resistance levels
Traders can also use the Accelerator Oscillator to identify support and resistance levels. When the AC is above the zero line, it indicates that the momentum is bullish, and traders can look for buying opportunities at support levels. When the AC is below the zero line, it indicates that the momentum is bearish, and traders can look for selling opportunities at resistance levels.
Conclusion
The Accelerator Oscillator is a powerful indicator that can help traders identify trend momentum changes and trade setups. By analyzing the histogram patterns, crossovers, divergences, and support and resistance levels of the AC, traders can make informed trading decisions and increase their chances of success. However, like any other indicator, it is important to use the Accelerator Oscillator in combination with other tools and strategies to confirm signals and reduce the risk of false signals.
