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We All know that trend is our friend. And so, the sooner you will be able to successfully determine the trend, the more profit you can extract from it. There are many different ways of determining the beginning of a new trend.
But we need to assume that price is the last element to change. Before you change the price, change the driving force of the market, and before it changes direction, the acceleration driving force should slow down to zero. Then it begins to accelerate in the other direction, as long as the price starts to change its direction.
Accelerator Decelerator Oscillator (AC) was developed by the famous trader bill Williams specifically in order to provide early signals about changes in the forces driving the market. Today we'll look at how to use this indicator.
the Characteristics of the indicator
Currency pairs: any
trading Time: around the clock
Recommended brokers: Alpari, RoboForex, InstaForex
What is this indicator?
the First description of the indicator slow/fast came from B. Williams as the measurement of the third factor in his trading chaos theory. This indicator is a logical continuation of the author's indicator Awesome Oscillator.
Accelerator Decelerator Oscillator or AC (accelerator Oscillator Acceleration/Deceleration) is one of the tools that was developed by the famous trader bill Williams. The purpose of this tool is to identify points of acceleration or deceleration rates and demonstration of positive or negative dynamics. This indicator is one of the elements of the trading strategy of bill Williams ' Profitunity.
Williams noted that the market prices are constantly changing. It is important not only to see trends, but to build a job, based on the price behavior from the beginning of deceleration of the current trend before the emergence of the new.
in the analysis of what is happening in the market processes bill Williams said prices before the correction or reversal reduce the speed of the change and when the trend increases, then the rate of change of prices is increasing. AC changes direction after a change in the driving force, which usually indicates a possible trend change.
Acceleration Deceleration Oscillator is considered a leading indicator because before you turn around, the price should reduce the speed in the current direction, and hence you need to have data on the price acceleration (positive or negative). When the slowdown first have to turn the histogram, but with the acceleration of the current pattern is to show growth.
Accelerator Oscillator able to fairly accurately predict the phase dynamics of prices, and valuable for traders, its advantage lies in leading indications.
In most technical analysis software chart indicator is constructed as a histogram, with periods of growth are drawn green bars of the histogram, and the periods of decline — red.
unique Feature of this indicator is repaint the last bar. While the candle is not closed, the last bar of the indicator can change color, so it's important to work with AC after the bar closed.
the nought line is basically the spot where the driving force is balanced with acceleration. If AC is above zero then, usually it is easier to continue the upward movement. Unlike Awesome Oscillator, crossing the zero line is not a signal. The only thing you need to do to control the market and make decisions is to watch for changes in color.
you Need to remember: using AC, it is not recommended to buy when the current column is colored red, and do not want to sell when the current column is colored green.
Standard parameters 5-34 proposed by the developer of AC, as, in his opinion, provide a minimum of false alarms on an averagely volatile assets. For intraday trading it is recommended to select the parameters individually.
In the MT4 terminal there is no possibility to change the parameters of the indicator, but you can choose and install a indicator in the taste, download it to the appropriate topic on the forum.
the Zero baseline shifts dynamically depending on the values of the indicator. This line means the area 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 required for the formation of a trading signal.
AC bar chart is the difference between the value of 5/34 of the driving force histogram (Awesome Oscillator) and 5-period simple moving average, taken from that bar chart:
MEDIAN PRICE = (HIGH + LOW) / 2
AO = SMA (MEDIAN PRICE, 5) — SMA (MEDIAN PRICE, 34)
AC = AO — SMA (AO, 5)
MEDIAN PRICE — median price;
HIGH — maximal bar price;
LOW — the lowest bar price;
SMA — simple moving average;
AO — Awesome Oscillator. Application in trade
Now let's see how to use the indicator in real trading.
the Generation of the entry signals buy or sell
the Signal to buy occurs when two consecutive rising bars green. In this case, it is recommended to place a pending order a few pips above the previous candle Haya. Similarly, for sales, – we need to wait for two series of falling red bars and place a pending order a few pips below low of the previous candle.
In the case where the AC indicator is below zero, a signal to buy can also serve the presence of three consecutive rising green bars. The same is true for sales.
it Must be remembered that the signals AC are only confirming character and the main signal is always a touch of the first fractal. Only after this touch you can place orders according to the indicator signals AC.
If the AC signal appears, but before the pending order should trigger the histogram changes color, a trading signal is canceled.
it is Important to remember that the best way to use these signals to enter once for each indicator crossing the zero line. When we open a trade after crossing the AC zero line, next trade can only be opened in the reverse crossing.
the Use of AC as a filter for trades
the color Change indicator AC is very important. Green, regardless of the direction of the indicator, warns against short positions, and red, respectively, from long.
To enter the market in the direction of the driving force necessary to take into account the value and the color of the indicator AC. At the same time on H4 charts below, a very large number of false signals.
is Quite efficient filtration is obtained by trade within the day and use the AC indicator on the daily charts.
the flat Indicator
the AC Indicator can be used as an indicator of the flat: when volatility is low on the histogram appear small columns near the zero line.
the Periods of flat or low volatility are clearly visible, especially on low time frames charts.
use AC to Williams
unlike the Awesome Oscillator crossing the zero line itself is not a trading signal, but it means changing a pattern that should be formed for the opening of the transaction. Positive values are a sign of bullish market sentiment.
in the Same way, negative values indicate a bearish sentiment in the market. Williams stressed that with AC you don't have to buy if you see a red strip, and not have to sell if you see a green strip. You also need to follow the color indicator and the fact whether the values above or below zero.
Here's a simple summary of the rules for the strategy Accelerator Oscillator, as was originally prescribed by bill Williams: if you buy above zero or below zero sell, then all is well. You only need two series of growing bars to open a trade. That is, growing two green bars above zero is a buy signal, and two red bars falling below the zero line is a sell signal.
Sam Williams proposed to use the alligator Indicator as the primary. In this case, Awesome Oscillator and Accelerator Oscillator can work as a more sensitive tools to confirm the signals from the Alligator.
the Accelerator Oscillator indicator like any other, has its pros and cons. A clear advantage of the indicator is its simplicity — it has only the columns of the histogram, which greatly simplifies the analysis.
There are no curves, which might intersect with the histogram, and other complex perceptual elements.
Another advantage is that this indicator is intended to work with any tools on any time scales. The significant advantage of the Accelerator Oscillator consists in the fact that it gives very strong signals.
the Disadvantages of the Accelerator Oscillator
the Big drawback of this tool is dependent on other indicators. If, for example, the relative strength Index can be used independently and generates fairly reliable signals, the Accelerator Oscillator in this he is greatly inferior.
Another disadvantage of the indicator can be considered a smaller number of signals and options than any other oscillators. For example, Stochastics allows to trade from overbought and oversold, or from the intersection of the signal and main lines, while the MACD, moreover, allows you to use divergence.
Despite this, the Accelerator Oscillator is worthy of attention. Often in combination with other indicators it provides quite good results.
bill Williams Accelerator Oscillator has been developed to provide the earliest signs of possible trend changes, rightly assuming that this will give traders a significant advantage in the market. Thus, despite the fact that the Accelerator Decelerator Oscillator generates a pretty weak signal, in combination with other indicators it is a very useful tool of technical analysis.
best regards, Dmitry aka Silentspec
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