How to Calculate Acceleration Bands for Trading Stocks

When stock prices cross acceleration bands, expect further volatility.
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Stock prices change regularly. Minor increases or decreases in a stock price could be random, or can reflect wider market considerations instead of the company's performance. But if the stock price quickly reaches an unexpected new level, this may reflect a more significant change in how investors see the company. This change can help you predict further price acceleration. Acceleration bands are threshold values that indicate significant change.

Step 1

Identify the highest and lowest stock price during a reference period. For example, identify the stock's highest and lowest level during the past 20 days.

Step 2

Find the average of these values. For example, if the stock reached a high of $591 and a low of $563, add them together and divide the result by 2 to get an average of $577.

Step 3

Divide the difference between the high and low values by their average. Continuing the example, divide $28 by $577 to get 0.0659.

Step 4

Multiply this ratio by 2 and add 1. Continuing the example, multiply 0.0659 by 2 and add 1 to get 1.132.

Step 5

Multiply this factor by the stock's upper and lower values to find the upper and lower acceleration bands. Continuing the example, multiply $591 and $563 by 1.132 to get $669 and $637 as the stock's acceleration bands.

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