Accelerator indicator

Before reading this lesson you should have previously read through:

The accelerator (AC) is an indicator that reveals the driving force behind movements the price of an asset.

The accelerator is an oscillator indicator that reveals the driving force behind price movements. It helps you identify reversals.

The AC indicator helps you identify reversals – where the price of an asset changes direction and moves from an uptrend to a downtrend or vice versa.

By measuring how many buyers and sellers there are in a market, it helps you form a view on the future direction of a price and – crucially – how fast that movement may be. The AC indicator works best in trending markets.

Green bars for bulls, red bars for bears

The indicator appears in a box directly underneath the regular price chart. It has a zero line running horizontally along the middle with green/red bars above or below it.

The image below shows how the accelerator indicator appears on a chart:

accelerator on a chart

The accelerator indicator's zero line marks the point where the number of traders buying and selling an asset are equal.

Green bars indicate a bullish market, where buyers outnumber sellers and prices are rising. Red bars indicate a bearish market, where sellers outnumber buyers and prices are falling.

Reading the indicator to find the driving force

Green bars indicate a bullish market, where buyers outnumber sellers and prices are rising. The appearance of a green bar above the zero line gives you a buy signal. The taller a green bar is, the more buyers there are in the market and the stronger the driving force behind the rising price.

Red bars indicate a bearish market, where sellers outnumber buyers and prices are falling. The appearance of a red bar below the zero line gives you a sell signal. The lower a red bar is, the more sellers there are in the market and the stronger the driving force behind the declining price.

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Look for reversals

The accelerator is a useful signal of market sentiment and can help you identify reversals, or changes in direction, of a price.

When the colour of the indicator's bars changes from red to green, for example, this can mean a downtrend is due to change to an uptrend, with the number of buyers increasing and prices starting to rebound upwards.

The image below shows the accelerator indicator providing a buy signal:

accelerator buy signal

number_1 Green shaded area shows that the bars have turned from red to green indicating a reversal to the upside.

When the colour of the indicator's bars changes from green to red, this can mean an uptrend is due to reverse course, with more sellers entering the market and prices starting to fall.

The image below shows the accelerator indicator providing a sell signal:

accelerator sell signal

number_1 The shaded area shows the green bars turning to red, indicating a possible reversal to the downside.

Wait for confirmation

Wait for at least two bars to form in any one colour before you place a trade. This will help confirm that a new trend is forming.

Before you place a trade based on the accelerator indicator's signals, it is a good idea to wait for at least two bars to form in any one colour. This will help confirm that a new trend is indeed forming.

For example, if you are looking for a buy signal, wait for at least two green bars to form above the zero line before placing a trade. If you are looking for a sell signal, wait for at least two red bars to form below zero.

You can practice using the accelerator indicator in the exercises below:

Exercise 1: What phase is the highlighted area indicating? Show exercise
Exercise 2: What area on the chart is highlighting a potential bullish sentiment? Show exercise

Summary

In this lesson you have learned ...

  • … the accelerator (AC) is an oscillator indicator that reveals the driving force behind price movements.
  • … the AC indicator helps you identify reversals – where the price of an asset changes direction and moves from an uptrend to a downtrend or vice versa.
  • … the accelerator's zero line runs horizontally along the middle of the chart and marks the point where the number of traders buying and selling an asset are equal.
  • … green bars indicate a bullish market, where buyers outnumber sellers and prices are rising.
  • … the appearance of a green bar above the zero line provides a buy signal – the taller the green bar, the stronger the driving force behind price rises.
  • … red bars indicate a bearish market, where sellers outnumber buyers and prices are falling.
  • … the appearance of a red bar below the zero line provides a sell signal – the lower the red bar, the stronger the driving force behind price declines.
  • … traders usually wait for at least two bars to form in any one colour – this helps confirm that a new trend is forming.

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