Here's a quick video on how to use Acceleration Bands.
The principle of Acceleration is one of the most critical lessons that active traders must learn. Stock traders need to get the best bang for their buck. They desire to rotate capital to the best performing stocks quickly and then rotate out of those stocks when the acceleration period ends. The goal is to keep moving your capital into the best-performing stocks. And option buyers especially need to be in the best trending stocks, as the time lost while holding an option can best be overcome by stocks that move sharply in the anticipated direction. We want to achieve maximum movement in the stock over the least amount of time possible.
1. Usually consider looking at the last 20 bars on the Acceleration Bands - on a daily chart this incorporates roughly the last month's trading activity, while on a weekly chart this covers 4-1/2 months and a monthly chart just over 1-1/2 years of price action.
2. The upper and lower Acceleration Bands are plotted equidistant from the simple 20-period simple moving average (the middle blue line in the charts below). A daily chart shows a 20-day moving average, and a weekly chart plots a 20-week moving average.
3. Acceleration Bands adjust for a stock's volatility - the more volatile the stock's price action over the last 20 periods, the wider the bands will be around the moving average.
4. Once the security sees two consecutive closes above the upper Acceleration Band, this is considered a buy signal - on trending stocks this will often lead to a major upside Acceleration move - on choppy trading range stocks, this will often be a headfake - BigTrends uses historical data which it shares with subscribers to show which stocks have performed the best (and the worst) based on several entry and exit rules.
5. One close back into the Acceleration Band signals a traditional exit of the trade, as the Acceleration period is now likely to end. First, let's look at a daily chart of CMGI from late-1999 and early 2000. An Acceleration Buy signal was given on the second straight close above the upper Acceleration Band on November 18, 1999 at 63.03, with the entry coming at the next morning's open at 63.25. As you can see, this upper Acceleration Band acted as impressive support on a closing basis, with the stock holding on a closing basis on several key tests, with the stock finally closing under the upper Acceleration Band on December 30, 2000 at 134.41. Therefore, the system’s exit signal came on the next morning's opening at 135.25. However, in this case, I used a covered call strategy to lock in profits on this position. At the same time I was able to delay for a few weeks my realized gain of over 100% until the next tax year, thus allowing these gains to compound for an extra 12 months before paying the tax man.
Trade well with Acceleration Bands