Oscillators are typically used in conjunction with other technical analysis indicators to make trading decisions. Analysts find oscillators most advantageous when they cannot find a clear trend in a company’s stock price easily, for example when a stock trades horizontally or sideways.
Accelerator Oscillator (AO) is a highly accurate and efficient technical analysis tool invented by Bill Williams. He is the author of other popular indicators including Alligator, Fractals and Awesome Oscillator.
Most trading platforms include the Acceleration Oscillator in the list of standard tools.
You can find it in the selection list offered by the Pocket Option broker for binary options.
Calculation of Accelerator Oscillator
As a matter of fact, outwardly AO is similar to its prototype – Awesome Oscillator.
The same histogram with red and green bars that are plotted above and below the zero level.
However, the main difference between these two oscillators is the calculation method. Thus, the AO is calculated by subtracting a simple moving average with a period of 5 from the Awesome Oscillator value.
Perhaps it looks very complicated, but it is not. Accelerator Oscillator is an automatic: you just need to enter the necessary parameters to visually display the histogram.
We stick to the classics: Bill Williams recommends using the values 5, 34, 5. They are set by default in the Pocket Option terminal.
How do I trade with the Acceleration Oscillator?
According to the creator of the instrument, the price is accelerating or slowing down at certain parts of the trend. For example, in the midst of a trend, the value of an instrument rises or falls actively, and before a reversal, the intensity, on the contrary, fades away.
The aforementioned slowdown can be seen by decreasing the size of the histogram bars, but the acceleration of the trend – by their growth. In this case, the location of the instrument relative to the zero level does not matter, but its color is, on the contrary, important.
Additionally, Williams recommends using the Accelerator Oscillator in conjunction with the Awesome Oscillator. Such collaboration is bearing tangible results. So:
- The CALL option is recommended when the histogram bars grow and are colored green on both oscillators. In addition, on the price chart, the close of the last candle should be higher than the previous one.
- A PUT option is purchased when both oscillators are colored red, the bars increase in size, and the closing price of the current candlestick is lower than the previous one.
The expiry must be specified in the amount of 3-4 bars.
It is recommended to trade with this system on lower timeframes up to the minute.
Overall, like most of Bill Williams’ indicators, Accelerator Oscillator is a reliable tool. The EA works ahead of schedule, which significantly reduces the likelihood of entering a position at the end of the movement.
Traders use the trend indicator to discover short-term overbought or oversold conditions. When the value of the oscillator approaches the upper extreme value, technical analysts interpret that information to mean that the asset is overbought, and as it approaches the lower extreme, technicians consider the asset to be oversold.