A Deep Dive into the Acceleration/Deceleration Indicator
Hello Skyrexians!
Last time we discussed how the Awesome Oscillator can be used to create profitable cryptocurrency trading strategies and what signals it generates. Today we’ll take a deep dive into Acceleration/Deceleration (AC), Bill Williams’ next indicator that can also improve your cryptocurrency trading strategy. This indicator can also be useful not only for manual trades, but also for developing your cryptocurrency trading algorithm, crypto algorithm trading platform, cryptocurrency trading bot, ai trading bot or grid bot. The main thing is to understand what the AC indicator is and what signals it generates, what signals we will use in crypto trading, as top crypto traders. Let’s go!
What is acceleration/deceleration?
The Acceleration/Deceleration (AC) Oscillator is a technical analysis indicator developed by Bill Williams, a renowned trader and author known for his work in market psychology and trading systems. This indicator helps traders identify changes in market momentum and potential trend reversals.
How does the Acceleration/Deceleration (AC) indicator work? The AC indicator is based on the idea that market momentum (the speed of price movement) often changes before the price itself changes. By identifying these shifts in momentum early, traders can anticipate potential trend changes.
AC is derived from the Awesome Oscillator (AO), another indicator created by Bill Williams, which represents the difference between a 34-period and a 5-period simple moving average of the median price (the average of the high and low prices). AC is calculated by subtracting the AO’s 5-period simple moving average from the AO itself. Mathematically it can be represented as:
AC = AO − SMA5(AO)
Where AO is the Awesome Oscillator (calculated as the difference between the 34-period SMA and the 5-period SMA of the median price). SMA5(AO) is a 5 period simple moving average of AO. Now let’s look at what types of signals alternating current can generate.
Signals to buy AC
There are two types of buy signals using the AC indicator: one when the histogram is below the zero line, and the other when it is above. According to Bill Williams, it is easier for the price to rise when the acceleration is above zero. Thus, to generate a buy signal, we only need two consecutive green bars on the histogram. When the second green bar appears on the histogram above the zero line, we should place a buy order one tick above the corresponding price candle.
A buy signal can also occur when the histogram is below the zero line, but since momentum is still negative at this point, we need stronger confirmation before going long against it. We must wait for a sequence of three green bars below the zero line, where the third bar is the actual signal. In this case, we place a buy order one tick above the high of the price candle that corresponds to this third bar. In the price chart below you can see examples of both types of buy signals in action. As shown, both situations resulted in significant growth.
AC sell signals
There are also two types of sell signals. The same logic is used here. If the AC bars are below the zero line, we don’t need as many confirmations to sell the asset, otherwise, if the bars are above zero, it is better to wait for a stronger confirmation to sell it. A sell signal is generated on the second consecutive red column if it is below the zero line, and on three columns otherwise.
An example of both types of signals can be found in the picture below.
Conclusion
The Acceleration/Deceleration (AC) oscillator is a useful tool for traders who want to track changes in market momentum and anticipate possible trend shifts. By focusing on acceleration and deceleration rather than just trend, AC provides early warning signals, allowing traders to make more informed decisions.
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