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Like Awesome Oscillator, Accelerator Oscillator was also developed by Bill Williams. Its aim is to forecast the price changes through measuring acceleration or deceleration of the current market driving force. This is possible because, according to Williams, the price usually starts moving slower before a reversal. As a result, Accelerator Oscillator changes direction slightly before the change in momentum. This, in turn, may be used to forecast the change of the price.
Accelerator Oscillator is calculated as the difference between the Awesome Oscillator and 5-period simple moving average and the 5-period moving average of the Awesome Oscillator.
To add it to your chart in Metatrader, click “Insert”, choose “Indicators”, "Bill Williams" and then “Accelerator Oscillator”.
The oscillator fluctuates around the central zero levels. This is a place where the momentum and the acceleration are balanced. Its bars are either green (for the increasing acceleration) or red (for the decreasing acceleration).
It’s necessary to watch both the value and the color of the indicator’s bars. Notice that there’s a difference between the Awesome Indicator and the Accelerator Oscillator.
Firstly, the Accelerator Oscillator helps to eliminate bad entries. You shouldn't buy if you see a red bar and you shouldn't sell if the last bar is green.
Unlike the Awesome Oscillator, it’s not a signal when the Accelerator Oscillator crosses the 0 line, although it means a change in the market (a switch from bullishness to bearishness or vice versa) and certainly contributes to a trader’s judgment.
The potential solution is to buy if there are at least 2 green bars above 0 in a row. If the Accelerator Oscillator is below 0 and you want to open a buy trade, the momentum will be against you. As a result, the entry to a long position when the indicator value is negative requires an extra confirmation: you will need 3 green bars to buy instead of 2.
The same is will short positions. Sell when the Accelerator Oscillator forms at least 2 consecutive red bars below 0. If red bars are above 0, you will need 3 bars to sell.
Here is the example of signals provided by the Accelerator Oscillator:
The Accelerator Oscillator and the Awesome Oscillator can be used for trade signals together with the Alligator Indicator. Bill Williams proposed to open trades when the latter allows it and use the 2 oscillators to make the trades more precise. At the picture below, the Alligator Indicator signals a downtrend. As a result, it’s sensible to focus on the sell trades suggested by the Accelerator Oscillator. This will lead to a better quality of market entries:
