This lesson will cover the following
- Explanation and calculation
- How to interpret this indicator
- Trading signals, generated by the indicator
Developed by Bill Williams as a development component of the Awesome Oscillator, it measures the difference between the Awesome Oscillator and the 5-period moving average. This indicator reflects the pace at which the Awesome Oscillator changes, while this can be used in order to detect trend reversals before the Awesome Oscillator indicates such.
In case the Accelerator Oscillator moves above the zero line, this is considered as a signal that acceleration to the upside will continue. In case the Accelerator Oscillator moves below the zero line, this is considered as a signal that acceleration to the downside will continue.
Generally, signals of a price surge are confirmed by two green bars following one another and the Accelerator Oscillator being above the centerline. Signals of a price decline are confirmed by two red bars following one another and the Accelerator Oscillator being below the centerline.
There is another way to look at this indicator – to search for signals when the Accelerator Oscillator is on the opposite side of the centerline. For instance, a trader should look to go long, when the Accelerator Oscillator is below the centerline and go short, when the Accelerator Oscillator is above the centerline. In both cases, however, further confirmation is required – at least one more bar. Therefore, when the indicator is below the zero line and the trader intends to go long, at least three green bars need to be present below the zero line. When the indicator is above the zero line and the trader intends to go short, at least three red bars need to be present above the zero line.