Everyone involved in trading Forex knows that there are many
technical tools used in financial markets. Some of these tools were developed
by the famous American trader Bill Williams. He conducted some studies to use
Chaos Theory in trading, and we have provided information about these in our
previous articles. In this article, we will discuss one of Bill Williams’ works
called the Accelerator Oscillator (AC). This indicator is used to understand
price movements and capture trend changes based on Chaos Theory. Bill Williams
has argued that financial markets are inherently chaotic and exhibit complex
and random movements instead of following a specific pattern. Therefore,
Williams’ trading approach emphasizes that predicting price movements is
complex and not exact.
What is the Accelerator Oscillator (AC)?
The Accelerator Oscillator is an indicator used to measure
the difference between changes in price on a price chart and price momentum.
This oscillator contributes to our understanding of the speed and momentum of
the current trend. The basic logic of the oscillator is to assess the momentum
and momentum of price movements. In other words, it calculates the change in
momentum by calculating the difference between moving averages. Differences
between acceleration and deceleration help us identify strong and weak
movements in the market. The indicator typically has the capacity to generate
buy and sell signals, and it is displayed in a histogram format with positive
or negative values. Positive values reflect rising price momentum, while
negative values reflect falling price momentum.
Structure of Accelerator Oscillator
The structure of this indicator is formed by representing
the difference of moving averages as a histogram, and it consists of the
following components:
Zero Line: Generally, a zero line is placed at the
center of the histogram. This line acts as a divider between positive and
negative values. Positive values are usually above the zero line, while
negative values are below it.
Histogram: The difference of moving averages is added
to the graph in the form of a histogram. The histogram is typically displayed
as a bar chart. The difference between positive and negative values is
represented by the height of these bars. The columns of the histogram are often
filled with different colors to visually represent positive and negative
values. Positive columns are often colored green or blue, while negative columns
are red or orange. However, we can customize these colors if we wish.
This structure constitutes the main features of the
Accelerator Oscillator. We use the height and colors of the histogram to
understand changes in momentum and price movements.
Trading with the Accelerator Oscillator
Buying Order (Long Position):
When trading with the Accelerator Oscillator, if positive values emerge or rise above the 0 line, it signifies increasing momentum and strength. During such times, we commonly place a Buy order. In a period where the positive columns in the histogram are growing and the price is moving upwards, we also enter a Buy order. Additionally, if we encounter positive divergence in the indicator, it means we have a good opportunity to place a Buy order. Let’s take a look at an example on the German Stock INDEX (DAX) chart below:
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| AC Indicator in the DEU40 chart |
Selling Order (Short Position):
Moments when negative values appear or drop below the 0 line
indicate decreasing momentum and strength. In this scenario, a Sell order would
be relevant. If the negative columns in the histogram increase, we place a Sell
order considering that the price will likely move downwards. Additionally, if
we come across negative divergence in the indicator, it means we’ve found a
great Selling opportunity. An example is provided in the chart above.
Note: While the Accelerator Oscillator and the
Awesome Oscillator may appear visually similar, they differ in purpose and
calculation methods. The Awesome Oscillator focuses on measuring market
momentum and trend changes, whereas the Accelerator Oscillator is more geared
towards measuring the momentum of price movement, indicating the direction and
change of price momentum through positive/negative values. Moreover, the
Awesome Oscillator is composed of the difference between fast and slow moving averages. The fast moving average uses a 5-period, while the slow moving
average employs a 34-period. On the other hand, the Accelerator Oscillator is
also based on the difference between moving averages, but it uses a shorter
calculation period instead of a specific period. It highlights the difference
between positive and negative values.
Keep in mind. Sudden fluctuations or small changes in price movements in the Forex market can lead to misleading signals from the Accelerator Oscillator. Market conditions do not always work the same way, and during such times, this oscillator may fall short in identifying trend changes. When trading in financial markets, relying solely on one indicator leaves the market analysis incomplete. It is important to pay attention to other analytical tools and market conditions when making trading decisions.