Accelerator Decelerator Oscillator

People remember the best what they read in the beginning and in the end. So, we started with some of the most important indicators, and let's end with another one.

The Accelerator Decelerator Oscillator, often called the AC Oscillator, is a tool used by traders to measure the acceleration and deceleration of price movements. Created by Thomas R. DeMark, this indicator helps identify the strength of a trend and potential reversal points. It builds on the Awesome Oscillator by adding another layer of analysis, making it useful for spotting changes in market momentum.

Traders use the AC Oscillator to gain insights into the market's momentum. By understanding whether the price movement is speeding up or slowing down, traders can make better decisions about when to enter or exit trades. This indicator is particularly useful for active traders in the Forex market who seek to capitalize on short to medium-term price changes.

How the Accelerator Decelerator Oscillator Works

The AC Oscillator builds on the Awesome Oscillator (AO) by comparing the AO's current value to its moving average. Here's a simple breakdown of how it works:

1. Calculate the Median Price:

   javaCopy codeMedian Price = (High + Low) / 2

   This provides an average price for each period.

2. Compute the Awesome Oscillator (AO):

   scssCopy codeAO = SMA(Median Price, 5) - SMA(Median Price, 34)

   • SMA: simple Moving Average

   • Period 5: fast moving average

   • Period 34: slow moving average

3. Calculate the Accelerator Decelerator (AC):

   scssCopy codeAC = AO - SMA(AO, 5)

   This compares the current AO value to its 5-period moving average to determine acceleration or deceleration.

4. Plot the AC Oscillator: the AC is displayed as a histogram above and below a zero line:

   • Green Bars: Indicate increasing momentum.

   • Red Bars: Indicate decreasing momentum.

Reading the Accelerator Decelerator Oscillator

• Above Zero Line (Positive): indicates accelerating bullish momentum.

• Below Zero Line (Negative): indicates accelerating bearish momentum.

• Crossing Zero Line: signals a potential change in trend direction.

Using the Accelerator Decelerator Oscillator in Trading

Traders use the AC Oscillator to identify buy and sell signals based on the momentum of price movements:

• Buy Signal:

  • When the AC histogram turns green and rises above the zero line.

  • Indicates that bullish momentum is increasing.

• Sell Signal:

  • When the AC histogram turns red and falls below the zero line.

  • Indicates that bearish momentum is increasing.

Additionally, traders look for divergences between the AC Oscillator and price movements to spot potential trend reversals.

Exercise

Objective: Use the Accelerator Decelerator Oscillator to identify buy and sell signals on a real asset.

Scenario: Trading EUR/USD on a 30-Minute Chart (you can also select other assets and time frames if you want).

1. Set Up the Indicator:

   • Open your trading/backtesting platform (such as TradingView) and select the 30-minute chart for the EUR/USD currency pair.
   • Add the Awesome Oscillator (AO) and the Accelerator Decelerator Oscillator (AC) with default settings.

2. Identify a Buy Signal:

   • Watch for the AC histogram to turn green and rise above the zero line.

   • Confirm that the price is above the moving averages used in the AO calculation.

   • If these conditions are met, consider entering a long position.

3. Identify a Sell Signal:

   • Look for the AC histogram to turn red and fall below the zero line.

   • Confirm that the price is below the moving averages used in the AO calculation.

   • If these conditions occur, consider entering a short position.

4. Review Your Trades:

   • Keep a record of your buy and sell decisions based on AC signals.

Accelerator Decelerator Oscillator is a funny name, isn't it?