Indicator Toolbox – Acceleration Bands

By Jody Samuels

The last ten articles have been entitled Analysis Toolbox and we discussed the various market cycles including trends and continuations. This next part of the The Trader’s Indicator Series focuses on the Indicator Toolbox, as we will discuss various indicators that are found on most trading platforms. We will discuss 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)

In the last series, called The Trader’s Pendulum, we took you through the 10 Habits, all aimed to support a successful trader. Your mission in developing these habits is to get out of the Technical Trader’s Trap and transform into an Entrepreneurial Trader so that you can start being accountable to your trading. We invited you to take action and begin your journey by completing the Trader’s Scorecard (www.fxtradersedge.com/scorecard) and to get down to business by arranging a free coaching session. In this Indicator Series, we talk about the mechanics of trading.

Acceleration Bands

Developed by Price Headley. These bands serve as a trading envelope using an instrument’s typical volatility over a standard setting of 20 bars. The upper and lower bands are plotted equidistant from a simple moving average (SMA) as a midpoint.

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 2180 on November 15th

EXIT: 2182 on November 16th.

SIGNAL 2: BUY at 2196 on November 21st

EXIT: 2203 on November 22nd.

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EXAMPLE 2

While this was initially designed for stocks, it also works on currencies. The Daily USD/JPY chart below produced 1 signal on November 14th since July 2016.

SIGNAL 1: BUY at 109.20 on November 14th

EXIT: Still in play on November 22nd with price at 111.16.

usdjpy

 

With the USD/JPY still in play, if anything, this indicator helps traders not buck 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 but if stops are close, that will improve the results. See you next week for another “A” indicator!

If your mission is to become a trader or investor who stays out of the Technical Trader’s Trap, then take the leap to grow into an entrepreneurial trader.

I created the FX Trader’s EDGE Coaching Program modelled after the “10 Habits of Successful Traders”, which is the title of my newly published book 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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