Among market participants, the phrase that the trend is your friend is well known. Therefore, the earlier you can identify a trend, the more benefits you can get. That is why it would be useful to have a new trend warning system. The Accelerator Oscillator indicator is designed to give the first signals when there is a change in strength behind a market.
Accelerator Oscillator indicator
The Accelerating Oscillator is one of the most popular indicators developed by the famous technical analyst Bill Williams. Williams said that the direction of dynamics always changes before prices change, so you get a time advantage if you focus on dynamics rather than price.
The acceleration indicator tries to go further and identify the first changes in market dynamics, that is, when the market momentum accelerates or slows down.
Williams considered that the change in the price trend is preceded by the change in the direction of the momentum and, long before that, there is a change in the acceleration of the dynamics. The Accelerator Oscillator (also known as the Acceleration / Deceleration Indicator) is the tool he developed to evaluate this change.
We will pass the calculation method of the indicator and how it works.
How to Calculate the Accelerator Oscillator
The Forex Accelerator Indicator is derived from the Awesome Oscillator (OA), another Bill Williams indicator. The awesome oscillator compares a 5-period time interval with a 34-period time interval to get an overview of market dynamics.
More specifically, the OA is the simple moving average (SMA) of the 34-period average price subtracted from the 5-period average price SMA.
The Accelerating Oscillator is a derivation of this indicator: to calculate it, the 5-period moving average of the OA must be subtracted from the Awesome Oscillator. The following equation sums it up:
▶ Indicador Accelerator Oscillator = OA – SMA 5 (OA)
Usually doing these calculations can be a tedious task. Of course, the good news is that you don’t need to do all these calculations manually because MetaTrader 4 does it automatically. Therefore, if you still do not have it downloaded, you can do it through the following image:
Now let’s examine the parameters of the Accelerator Indicator in MetaTrader 4.
How to add the Accelerator Indicator on MT4
It is very easy to use the accelerating oscillator because it is one of the standard indicators grouped in the trading platform.
The standard indicators in MetaTrader 4 are divided into 4 broad categories: trend indicators, oscillators, volumes, and Bill Williams.
Although it is an oscillator, the accelerator oscillator is rated on MT4 primarily as a Bill Williams indicator. So it’s on the Bill Williams file. In fact, it is the first item to appear in this folder, as shown in the image below:
Then the paramerters window should show up:
The default colors are as follows:
- Green ➞ increasing acceleration
- Red ➞ decreasing acceleration
Interpretation of the Accelerator Oscillator in Forex
In the image below the EUR / USD chart, you can see how the indicator appears with the default values. The accelerating oscillator appears in a separate histogram at the bottom of the graph.
Keep in mind that when the price increases on the chart it is reflected with successive green bars on the zero line of the Accelerator indicator. Generally, the uptrend continues after this point.
In the middle of the chart, when the price starts to fall, successive red bars are seen on the Accelerator oscillator below the zero line. The general downtrend persists after this point.
Some of the essential trading rules for using the Accelerator indicator revolve around these types of models.
Next we will see in more detail a trading strategy with the Accelerator Oscillator MT4.
Trading Strategy with the Accelerator Oscillator
Bill Williams’ words regarding the Accelerator Oscillator are: “the zero line is the place where market dynamics balance out with acceleration.” But what exactly does this mean? When the indicator is above the zero line, it means that it is easier for the acceleration to continue increasing. On the contrary, when the indicator is less than zero, it is easier to increase the deceleration.
Unlike the Awesome indicator, crossing the zero line is not a trading signal per se, but it does signify a change in pattern that we must follow to ensure we trade.
The simplest trading strategy with this indicator is really very easy to follow:
⇨ Positive values are a sign of optimism in the market.
⇨ Negative values suggest a downward trend in the market.
Williams pointed out that with the Accelerator Oscillator, you shouldn’t buy if you see a red bar and you shouldn’t sell if you see a green bar. You also have to control both the color of the indicator and whether the values are above or below zero.
The best way to practice a trading strategy is with a demo account. This allows you to operate with virtual funds, without risk, and to be able to try all the variants until you find the one that best suits your style:
Here is a simple summary of the rules of the trading strategy with the Accelerator indicator, according to the original instructions of Bill Williams:
◈ If you buy above zero or sell below zero, follow the market dynamics. You only need two successive bars of the same color to open a trade.
➤ In other words, two consecutive green bars above zero is a buy signal.
➤ Two consecutive red bars below the zero line is a sell signal.
◈ If you buy with the indicator below the zero line, or sell above the zero line, you would be acting against the market dynamics. This requires additional confirmation and therefore you must look for three successive bars to open a trade.
➤ In other words, it takes three consecutive red bars to sell above the zero line.
➤ Similarly, three consecutive green bars are required to buy below the zero line.
Bill Williams suggested using the Alligator indicator as the most important arbiter in deciding whether to open a trade or not. In this case, the Awesome Oscillator and Oscillator Accelerator can be used as more sensitive tools that identify specific signals for the larger image produced by the Alligator indicator.
Of course, the options to improve the performance of this indicator are not limited only to combinations with other indicators from Bill Williams. In theory, any indicator can help your trading strategy with the Accelerator MT4 indicator, so it is advisable to have access to the widest possible selection of Forex indicators.
If you are interested in maximizing options in this regard, you can take advantage of the MetaTrader Supreme Edition extension. It is a custom plugin, compiled and developed by professionals to offer a full range of trading tools and indicators. It’s free to download, so why not give it a try?
