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Acceleration/Deceleration Oscillator AC Indicator

 

Purpose


Acceleration/Deceleration Oscillator is a technical indicator, that indicates the acceleration or deceleration of the existing market driving force. AC oscillator measures whether the market driving strength is rising or falling. It gives FX traders an early notification of changes in price direction:

  • The AC indicator changes direction before the driving force does
  • The driving force changes direction before the price does

Using AC indicator, a Forex trader can select a price direction before the changes will happen



Usage


This technical indicator is fluctuating around a median 0.00 (zero) level which matches to a relative balance of the existing market driving force with the acceleration. Positive values indicate a increasing bullish trend, while negative values may be qualified as a bearish trend development. The indicator changes its direction before any actual trend reversals take place in the market therefore it serves as an early warning sign of probable trend direction changes.


The indicator color changes alone are very important as the current green line (irrespectively of the value) warns against long positions the same way as the red one would against selling.


To enter the market along with its driving force one needs to watch for both value and color. Two consecutive green columns above the zero level would suggest you to enter the market with a long position while at least two red columns below the zero level might be taken for a command to go short.


Fake signals prevail in timeframes smaller than 4 hours.




Calculation


AC Oscillator technical indicator is the difference between the value of 5/34 of the driving force bar chart and 5-period simple moving average, taken from that bar chart.


AC = AO-SMA (AO, 5),

Where:

  • AO = Awesome Oscillator (AO) indicator
  • SMA(AO, 5), = simple moving average of AO over the most recent five intervals

AO is, in turn, the SMA of the median price (MP) for five intervals, minus the SMA of the MP over 34 intervals:

AO = SMA( MP, 5 ) - SMA ( MP, 34 )
The median price is the average of the high and low prices in an interval.
MP = ( high price – low price )/2

Note that the SMA is just the sum of the values over a number of intervals, divided by that number of intervals. For example, to get the SMA over five intervals, add up the five values and divide by five.

 

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