Accelerator/Decelerator Oscillator indicator helps you to detect changes in momentum, by measuring the acceleration or deceleration of the driving force. Each driving force is a fundamental factor that drives price. Oscillators change direction before the driving force, which in turn changes before the price.
In this way, oscillators are an early warning signal, telling you to get ready for a shift in the direction of the price.
You can find the Accelerator/Decelerator Oscillator indicator under the Bill Williams folder in MetaTrader since he developed it. When you click on that indicator, you’ll notice that Value Up on the dialog window is automatically indicated in green, while Value Down is indicated in red. You can adjust the line thickness as you choose.
The Accelerator/Decelerator Oscillator indicator is not a trading signal in itself but makes you more confident about your position.
At the zero line, the driving force is balanced. There is neither acceleration nor deceleration. If acceleration is higher than zero, it’s easy to continue this upward movement.
If you see two green bars on the chart, you can more confidently enter the market and buy because the price will be moving upwards. If the line has crossed below the zero line and you see two red bars, it’s an indication that the price will be falling and you can sell.
To make decisions with the Accelerator Oscillator indicator you’ll need to watch for changes in color. Successive green lines above the zero line of the Accelerator Oscillator usually match a sharp rise on the price chart. If the price starts to drop, you’ll notice a red bar appear on the Accelerator Oscillator when this first occurs.
With this technical indicator, positive signs always show you that there is bullishness in the market. If you’re seeing a green bar, you must not sell. Similarly, negative signs are an indication of bearishness, so if you’re seeing a red bar, you must not buy. You’ll always need to keep an eye on both the color of the indicator and whether the bars are above or below zero.
If you decide to buy with the indicator below the zero line, the momentum will be against you. If you decide to sell with the indicator above the zero line, the momentum will also be against you. Only two successive bars of agreement are needed for you to open a trade. If you are going against momentum, you’ll need three successive bars of confirmation to open a trade.
So, if you want to buy when the bars are below zero, you’ll need at least three consecutive green bars to confirm your action. If you want to sell while the bars are above the zero line you will need to have three successive red bars to confirm that opening position.
The Accelerator Oscillator bar chart is obtained from the Awesome Oscillator (AO). You compare a 5 period time frame to a 34 period time frame, so where SMA represents the Simple Moving Average, the calculation is:
AO= SMA (median price, 5) – SMA (median price, 34)
AC= AO – SMA (AO,5)
You don’t have to do any of these calculations yourself. Everything is done for you within MetaTrader to produce the bars, which help to support your trading decisions. When you want to be absolutely sure of your decision, you should also use other indicators such as the Alligator indicator to decide whether you should trade.