Investing & Trading

Acceleration Deceleration Oscillator Study

By Samantha Baltodano


TL;DR:

The Acceleration/Deceleration Oscillator (AC) study is a technical indicator used to identify momentum in the financial market. It measures the difference between the Awesome Oscillator and its 5-day SMA, indicating acceleration or deceleration of momentum. 


Changes in momentum are believed to precede changes in price, providing early warning signals to traders. The AC study can be used with other indicators to confirm signals and generate trading strategies such as divergence and zero-line crossover.



What Is the Acceleration Deceleration Oscillator Study?

The Acceleration/Deceleration Oscillator (AC) study is a technical indicator that helps traders and investors identify momentum in the finance market. 


It is a variation of the Awesome Oscillator, which is a combination of two simple moving averages. The AC study measures the difference between the Awesome Oscillator and its 5-day SMA.


The AC study is used to evaluate the current momentum speed of a stock. It can help traders identify trends and make informed trading decisions. It’s based on the idea that changes in momentum precede changes in price. Therefore, the AC study can give traders early warning signals before the price changes.


The AC study consists of a histogram that fluctuates above and below a zero line. When the histogram is above the zero line, it indicates that the momentum is accelerating, and when it is below the zero line, it suggests deceleration. 


The distance of the histogram from the zero line indicates the strength of the momentum. High positive values signify rapid price growth, while low negative values suggest sharp declines. Values fluctuating around the zero level indicate slow price changes.



Calculation

The math behind the AC study is relatively straightforward. 


The Awesome Oscillator is calculated as the difference between two moving averages (usually 34 and 5-day SMAs) of the median price. The median price is the average of the high and low price of a stock. The 5-period SMA is then subtracted from the Awesome Oscillator to get the AC study.


  • AC = Awesome Oscillator - 5-period SMA of Awesome Oscillator


The AC study can be used in conjunction with other technical indicators to confirm or contradict signals. For example, a trader might use the AC study to confirm a trend identified by a moving average crossover.



Trade Signals

The AC study can generate several trading signals, including divergence and zero-line crossover. 


Divergence occurs when the price of a stock is moving in one direction, but the AC study is moving in the opposite direction. This divergence can indicate that the trend is weakening and could be a signal to sell or buy. 


The zero-line crossover occurs when the AC study crosses the zero line. A cross above the zero line indicates acceleration, while a cross below the zero line suggests deceleration.


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The Acceleration/Deceleration Oscillator study is a powerful tool that traders can use to identify momentum in the market. It provides early warning signals of changes in momentum that can precede changes in price. By using this indicator in combination with other technical analysis tools, traders can make informed trading decisions and improve their overall performance in the market.



Test The Acceleration Deceleration Oscillator Study

Great news! 


You can back test this exact strategy on historical data for any of your favorite symbols using TradingView. 


This strategy has already been built and all you have to do is log in and take it for a spin. You can access this indicator here.


If that’s not enough for you there are many more scripts built out already using different variations of this strategy. You can find those here.


If you’re new to back testing and to TradingView, don’t worry. I created a step-by-step guide you can follow to begin testing the Acceleration Deceleration Oscillator Study.



Summary

  • The Acceleration/Deceleration Oscillator (AC) study is a technical indicator that measures the difference between the Awesome Oscillator and its 5-day SMA to identify momentum in the finance market.
  • It is based on the concept that changes in momentum tend to precede changes in price, making it a useful tool for identifying trends and making informed trading decisions.
  • The AC study consists of a histogram that fluctuates above and below a zero line, with values above indicating acceleration and values below suggesting deceleration.
  • Traders can use the AC study in combination with other technical indicators to generate trading signals such as divergence and zero-line crossover, providing early warning signals of trend reversals and continuations.


Acceleration Deceleration Oscillator is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.


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