Price Headley’s Acceleration Bands serve as a trading envelope that factor in a stock’s typical volatility over standard settings of 20 or 80 bars.
Acceleration Bands are plotted around a simple moving average as the midpoint and the upper and lower bands are of equal distance from this midpoint.
Headley suggests using them on weekly and monthly time frames to determine price acceleration breakouts (breakouts outside the bands). When Acceleration Bands are used for smaller time frames, upper and lower bands are treated as levels of possible support and resistance.
The biggest winners were often the stocks that broke out and never gave you a chance to buy them back at support.
We want to achieve maximum movement in the stock over the least amount of time possible.
Active traders 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.
Acceleration: find trends that are starting to speed up for faster profit
Acceleration bands encompass 95% of the price action, we like to catch the other 5% move (fat tails by Gorge Soros). This allows us to trade the statistically rare events for Big Profits
How to Trade with AB Indicator
- 2 consecutive closes outside Acceleration Bands suggest an entry point in the direction of the breakout. Breakout outside these bands suggest a beginning of a strong rally or a sell-off.
- upper Bollinger Band breaking above the upper Acceleration Band to define the potential for a strong trend move.
- The close is where to determine whether to hold the position or exit. Wait until the close at the end of the week, usually on Friday. This takes more patience during the week than most traders are accustomed to, but it often results in being able to stay with the best trades longer than the rest of the crowd.
- The position is kept till the first close back inside the Bands. Closing inside the bands afterward signals about the end of a rally or a sell-off.