There are hundreds of indicators out there to help us understand and react to price changes within the foreign exchange rates. As if that’s not enough, there are THOUSANDS of possible indicator combinations that a trader can use within his or her trading system. Some work well – others can be a mismatch. In this article we explore how to use the Accelerator Oscillator and Accumulation Distribution indicators together for more insightful foreign exchange rates trading.
Foreign Exchange Rates Trading With The AC AD
The Accelerator Oscillator Indicator (AC). A Bill Williams brainchild, this is a useful tool to help pinpoint buying and sell opportunities within the foreign exchange rates trading world. Not only is this indicator fairly simple to interpret, it is quite accurate in helping reveal ideal times to buy and sell a currency pair. The Accelerator Oscillator is effectively a bar graph with a zero horizontal level. It is further colour coded – with green bars indicating a bullish momentum and red bars indicating bearish momentum. When combined with other indicators and with a generic understanding of chart and price formations, this can be a lethal indicator to use on a regular basis.
Accumulation Distribution (AD). This indicator looks to signal possible price trends or reversals through the use of volume analysis. The volume is said to accumulate when a days closing value is higher than the previous days closing. The volume is distributed should the days close be lower than the last days close. The premise of this indicator is quite simple – volume should be a leading indicator which can help us gauge possible movements in the foreign exchange rates in advance of them actually happening.
Combining The Accumulation Distribution & Accelerator Oscillator In Conjunction. We know that the Accumulation Distribution indicator can be used as a leading indicator. Therefore, we can spot breakouts on this indicator to tell us when a new trend may be about to form. We can then use the Accelerator Oscillator to confirm that there is in fact a buy/sell opportunity based on its position and colour.
Before looking at the rules, plot a trendline on both the foreign exchange price chart as well as the Accumulation Distribution indicator.
Here’s how to trade long using these two indicators:
First, we should see a break of the DOWNTREND on the Accumulation Distribution indicator. Second we should see a corresponding break of the down trendline on the price chart. These are significant events as a trendline break is a strong indication that an existing trend may be about to dissipate. Our final signal comes from the Accelerator Oscillator. We should see this indicator turn from being below the horizontal line to above it. When all these conditions are met, we would look to go LONG on the next price candle.
Here’s how to trade short using this duo of indicators:
We should first see a break of the UPTREND on the trendline plotted on the Accumulation Distribution indicator. This should line up with a corresponding break of the trendline on the foreign exchange rates price chart. The signal is complete when the Accelerator Oscillator makes its first appearance under the horizontal level. When all these conditions are met, we can take the short trade with some element of confidence.