Indicator Toolbox – Acceleration Bands

By Jody Samuels

The Trader’s Indicator Series focuses on the Indicator Toolbox, as we will highlight various indicators that are found on most trading platforms. We will present the indicator in the context of the chosen market, and if it resonates with you, please continue to do your own analysis with it. Trading successfully is all about feeling comfortable with a methodology and using that system repeatedly even when boredom sets in. I will be discussing indicators in alphabetical order that can be found on the MotiveWave platform. (for a free 2-week trial go to bit.ly/EWcharts) We invite you to take action and begin your journey by completing the Trader’s Scorecard (www.fxtradersedge.com/scorecard) and arranging a free coaching session with me.

Acceleration Bands

Acceleration bands are designed to catch strongly trending markets just as the trend is about to take off. Yes, there are false breakouts, but the key is to manage the positions within risk limits and maximize the size of the winners and minimize the size of the losers. Designed as a trading envelope, they can be used across multiple time frames, from tic charts to monthly charts. They can also be used to trade any market, although they were initially designed for trading stocks. This indicator follows the acceleration of a trending market and ensures that the trader is long an impulsive trend by following a few simple rules as follows: 1. BUY Signal – two consecutive closes above the upper Acceleration Band (Try entering on one close above the upper Acceleration Band). 2. EXIT Signal – one close back into the Acceleration Band (Try trailing a stop and initially use a stop below the 2 entry candles). As with any indicator/ system, it is important to observe the behavior of the Bands across many markets and time frames to get comfortable with the indicator personality. Once that is established, different trade management strategies can be implemented, and a combination of indicators can be used for confirmation.

EXAMPLE 1

The S&P hourly chart above shows 2 BUY trades once 2 candles close above the upper Acceleration Band. For the most part the S&P stayed within the bands during this time period but let’s examine the moves once the Bands were breached and the signal triggered. SIGNAL 1: BUY at 2907.9 on August 29th EXIT: 2922.9 on August 29th SIGNAL 2: BUY at 2932.6 on September 4th EXIT: 2928.4 on September 4th (once close back into the Acceleration band)

TRADE MANAGEMENT VARIATION

These rules keep the trader in the trade if price stays above the Middle Line. 1. BUY Signal – two consecutive closes above the upper Acceleration Band. 2. EXIT Signal – close below the Middle Line. SIGNAL 1: BUY at 2907.9 on August 29th EXIT: 2928.4 on August 30th SIGNAL 2: BUY at 2932.6 on September 4th EXIT: Trade still in play at last hourly close of 2974.4 on September 5th

DISCUSSION

Using the variation keeps the swing trader in the trade longer and with this example is more profitable. When a market is trending, it makes sense that this trade management method would produce larger profits. The risk is that the market is sideways, and this strategy could cause P/L chop. It’s always good to look at a higher time frame to see the market direction and current cycle. This strategy can be automated easily to avoid having to sit by the screen every hour since this is an hourly chart. Please see below a comparison of both Rules.

EXAMPLE 2

While this was initially designed for stocks, it also works on currencies. The Daily USD/JPY chart below produced one signal on May 8, 2019. SIGNAL 1: SELL at 110.1 on May 8th EXIT: 109.85 TRADE MANAGEMENT VARIATION These rules keep the trader in the trade if price stays below the Middle Line. 1. SELL Signal – two consecutive closes below the lower Acceleration Band. 2. EXIT Signal – close above the Middle Line. SIGNAL 1: SELL at 110.1 on May 8th EXIT: 108.44

DISCUSSION

Using the trade management variation keeps the swing trader in the trade longer and with this example is more profitable.

This indicator helps traders stick with the trend. It shows the trends that are very strong and when scanned across multiple markets, it may do very well to sniff out those strongly trending markets. Beware of false breakouts because that can cause P/L chop! Just as with any strategy used, please back test before trading real funds. I created the FX Trader’s EDGE Coaching Program modelled after the “10 Habits of Successful Traders”, which is the title of my book published by Wiley. The Trader’s Pendulum: The 10 Habits of Highly Successful Traders. Copyright (c) 2015 by Jody Samuels. This book and ebook is available at all bookstores, online booksellers, and from the Wiley web site at www.wiley.com.

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