The Accelerator Oscillator is developed by Bill Williams, its main purpose being to measure the acceleration or deceleration of the current market driving force. It is one of the basic indicators that are available in the market. This Indicator is based on the assumption that ‘the momentum of the move should fall before the prices change its direction.’ As a result, the indicator slightly changes its direction before the change in momentum.
The Accelerator Oscillator provides two lines, and these lines show us how fast the current driving force is accelerating or decelerating the directional changes in the market. If the indicator is higher than the Zero line, it is considered that the market will continue the upward flow. Contrarily, if the indicator is below the zero line, it means there is a stronger downward flow in the market.
When the Accelerator Oscillator is above the zero line and the indicator prints two green bars one after the other (as we see in the picture above), it is a ‘buy’ signal.
When the Accelerator Oscillator is below the zero line and the indicator prints two red bars one after the other (as we see in the picture above), it is a ‘sell’ signal.
Accelerator Oscillator (AC) Formula
AC = AO – SMA (AO, 5)
AO = SMA (Median Price, 5) – SMA (Median Price, 34)
Median Price = (High + Low)/2
High is the highest price of the bar
Low is the lowest price of the bar
SMA is the Simple Moving Average
AO is the Awesome Oscillator (this oscillator is developed by Bill Williams, as well)
Accelerator Oscillator’s Default Setting
Below are the default settings of this indicator. However, custom settings can be done according to the trader’s trading style. For a beginner, it is recommended to use these default settings.
- Logic – The AC rises
- Smoothing method – Simple
- Base price – Median
- Slow MA period – 34
- Fast MA period – 5
- Forming the MA period – 5
- Level – 0
Installing ‘Accelerator Oscillator’ in MT4 (step – by – step process)
This indicator is available on the MT4 platform by default. MT4 basically categorises indicators into four different categories, and there is an entire category dedicated to the Bill William indicators alone.
As soon as you open the MT4 terminal, click on the insert, and then click on
Indicators > Bill Williams > Accelerator Oscillator
Then, a new window will pop up where you get to set colours to the bars in the indicator.
Once you click ‘OK’ the indicator gets applied to the chart.
As you can see in the image below, the Accelerator Oscillator is applied to the AUD/JPY 60 chart.
Trading Strategies Using the Accelerator Oscillator
The primary reason why a lot of traders lose money in the market is because they rely on a single indicator to get the buy-sell signals in the market. It is highly recommended to combine this with other indicators for additional confirmation. Below are a couple of strategies.
Strategy 1: Accelerator Oscillator + Stochastic Oscillator
In this strategy, the Accelerator Oscillator is paired with the stochastic indicator to get accurate buy and sell signals.
Stochastic and Accelerator are both oscillators. The strategy is to watch the stochastic oscillator. When it reaches the oversold area and gives a sharp reversal, apply the Accelerator Oscillator. If it is above the zero lines and gives a green bar that’s a ‘buy’ signal, likewise, if the stochastic reaches the overbought area gives a sharp reversal, apply the Accelerator Oscillator. If it is below the zero lines and gives a red bar, that’s a ‘sell’ signal.
In the below chart, the Stochastic Oscillator gives us a buy signal. Also, the Acceleration Oscillator is above the zero line and gave a green bar. Hence, this is a potential buy signal.
Make sure to close your trade when the Stochastic Oscillator reaches the overbought area.
In the below chart, the Stochastic Oscillator reached the overbought area and gave a sharp reversal. At the same time, Accelerator Oscillator is below zero and gives a red bar. Both indicators are giving us a sell signal.
Strategy 2: Accelerator Oscillator + Moving Average
Moving average is a popular indicator in the traders’ community.
In this strategy, the Accelerator Oscillator is paired with Moving Average to get strong trading signals. 15, 5-period moving averages are being used with Accelerator Oscillator (default setting).
For you to implement this strategy, confirm a couple of things.
- The 5-period Moving Average should cross over the 15-period Moving Average
- The Accelerator Oscillator should be above 0 and give a green bar.
- The 5-period Moving Average should cross under 15-period Moving Average.
- The Accelerator Oscillator should be below 0 and give a red bar.
Below is the EURUSD 15 minutes chart. When the MAs crossover happened, and the AC is found below the zero line giving a red bar, it is a potential sell signal. Use the recent low to place ‘take profit’ and the recent high to place the ‘stop loss.’
Below is the EURCAD 15 minutes chart. Here, when the 15 period MA crosses the 5 period MA from below, and the AC is above the 0 line giving us a green bar, it is a potential buy signal. If you have anticipated this trade, you would have made 60 pips.
The Bottom Line
The Acceleration Oscillator helps in identifying the sign of trend reversal ahead of time. The indicator uses histograms (above or below the 0 line) to depict the bearish or bullish flow in the market. Traders can use the default settings of this indicator in MT4 before experimenting with them. AC should be used in conjunction with other indicators to generate accurate and robust trading signals.