What are Acceleration Bands?
Acceleration bands, also known as ABANDS, were created by Price Headley in 2002 to plot upper and lower bands around a simple moving average (SMA). In forex trading, acceleration bands are used as a strategy to take advantage of solid rally or sell-off points and profit from such.
How ABANDS Work
The idea behind ABANDS was to indicate when to enter a trade just as the pair is trending but before its price moves too much in one direction or the other. The indicator measures volatility over a user-defined number of bars, where the default is usually the last 20 bars. With the simple moving average as the midpoint, the upper and lower bands are plotted equally from the midpoint.
Using ABANDS for Forex Trading
Traders can use the indicator to get into and out of trades using the concept of acceleration. When a currency pairs’ price breaks above the top band, that indicates that the pair has broken out and is, therefore, “accelerated”, showing a buy signal, and vice versa for a sell signal. When the acceleration bands are used with smaller time frames, the indicator can work as an identifier for support and resistance.
To trade using the acceleration bands, look for two consecutive price bars closing outside the upper band. This is seen as a bullish signal and indicates for the trader to go long. To exit a position, look out when the currency price re-enters the upper band and closes either inside or below the upper band.