Acceleration Bands is a momentum indicator that factors in the stock’s volatility over a predefined period (usually 20 days or weeks). It’s typically plotted as an envelope over a chart with an upper band, lower band and middle band.
The upper and lower bands represent a trading range, while any breakout above or below the upper and lower band respectively indicates a rapid ‘acceleration’. So, if the stock breaks out from the upper band, it’s very likely that the price is going to rapidly accelerate over the next few days or weeks.
The middle band is simply a moving average line.
This indicator was formulated by Price Headley, the founder of bigtrends.com
The indicator works well in higher timeframes i.e. Daily or Weekly.
Below is the screenshot of Acceleration bands plotted in an Amibroker chart. The blue line represents an upper band, the red line represents a lower band and the white line represents a middle band.
Acceleration Bands AFL Download
Download the AFL code for acceleration bands from the below link:
It’s a fairly simple AFL code where the values of upper, lower and middle bands are calculated using the below formulas:
MA = Simple moving average
Range = (High – Low) / (High + Low)/2
LookbackPeriods = Moving average time period, by default it is set to 20
And then, these bands are plotted on a candlestick chart by using the standard Amibroker “plot” function.
You may also use EMA instead of MA to get more accurate and timely breakout signals.
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Long and Short Rules
You can go long if the price crosses above the upper band and close the long position when it crosses below the upper band. Similarly, you can go short when the price crosses below the lower band and square off when it crosses above the lower band. Based on your risk appetite you can also use middle band crossovers for closing the open positions.
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