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Deep dive into Acceleration / Deceleration Indicator

In this article you will learn how to use Acceleration / Deceleration indicator in your trading.

Hello, Skyrexians!

Last time we discussed how we can use the Awesome Oscillator to create profitable crypto trading strategies and which type of signals it generates. Today we will deep dive into Acceleration/Deceleration (AC) the next Bill Williams indicator, which can also enhance your cryptocurrency trading strategy. This indicator also can be valuable not only for manual trades, but also for developing your crypto trading algorithm, crypto algo trading platform, crypto trading bot, ai trading bot or grid bot. The main thing is to understand what is the AC indicator and which signals it generate, which signals we shall use in crypto trading like top crypto traders. Let's go!

What is Acceleration / Deceleration?

The Acceleration/Deceleration Oscillator (AC) is a technical analysis indicator developed by Bill Williams, a notable 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 the Acceleration/Deceleration (AC) Indicator Works? The AC indicator is based on the idea that the momentum of the market (speed of price movement) often changes before the price itself changes. By identifying these shifts in momentum early, traders can anticipate potential trend changes.

The AC is derived from the Awesome Oscillator (AO), another indicator created by Bill Williams, which is the difference between a 34-period and a 5-period simple moving average of the median price (the average of high and low prices).The AC is calculated by subtracting a 5-period simple moving average of the AO from the AO itself. Mathematically, it can be represented as:

AC = AO − SMA5(AO)

Where AO is Awesome Oscillator (calculated as the difference between the 34-period SMA and the 5-period SMA of the median price). SMA5(AO) is 5-period simple moving average of the AO. Now let's consider which types of signals AC can generate.

AC buy signals

There are two types of buy signals using the AC indicator: one when the histogram is below the zero line and another when it is above. According to Bill Williams, it's easier for the price to rise when the acceleration is above zero. Therefore, we only need two consecutive green bars on the histogram to generate a buy signal. When the second green bar above the zero line appears on the histogram, we should place a buy order one tick above the corresponding price candle.

Chart 1. AC buy signals

A buy signal can also occur when the histogram is below the zero line, but since the momentum is still negative at that point, we need stronger confirmation before going long against it. We should wait for a sequence of three green bars below the zero line, with the third bar being the actual signal. In this case, we place our 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 gains.

Chart 2. AC buy signals examples
AC Sell Signals

There are also two types of sell signals. The same logic is used here as well. If AC columns below zero line we don't need that much confirmation to sell the asset, otherwise if columns above zero it's better to wait for stronger confirmation to sell it. The sell signal is generated on the second consecutive red column if it's below zero line and three columns in the opposite case.

Chart 3. AC sell signals

The example of both signals types you can find on the picture below.

Chart 4. AC sell signals example
Conclusion

The Acceleration/Deceleration Oscillator (AC) is a useful tool for traders who want to gauge changes in market momentum and anticipate possible trend shifts. By focusing on acceleration and deceleration rather than just the trend, the AC provides early warning signals, allowing traders to make more informed decisions.

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