Table of Contents
- What Is the Ultimate Oscillator?
- How Signals Are Generated
- Key Takeaways
- The Ultimate Oscillator Formula
- How to Calculate the Ultimate Oscillator
- What Does the Ultimate Oscillator Tell You?
- The Ultimate Oscillator vs. the Stochastic Oscillator
- Limitations of Using the Ultimate Oscillator
- Related Concepts
- The Bottom Line
What Is the Ultimate Oscillator?
Let me explain the Ultimate Oscillator directly: it's a technical indicator I know was created by Larry Williams back in 1976 to gauge the price momentum of an asset over multiple timeframes. You'll find it has lower volatility and generates fewer trade signals than oscillators stuck on a single timeframe, thanks to its use of a weighted average from three different periods.
How Signals Are Generated
You get buy and sell signals from divergences with this indicator. It produces fewer divergence signals overall because of that multi-timeframe setup, which smooths things out.
Key Takeaways
Here's what you need to know: the indicator relies on three timeframes in its math—seven, 14, and 28 periods. The shortest one carries the most weight, while the longest has the least. For buy signals, look for bullish divergence where the low dips below 30 on the indicator, then it climbs above the divergence high. Sell signals come from bearish divergence with the high above 70, followed by a drop below the divergence low.
The Ultimate Oscillator Formula
The formula for the Ultimate Oscillator is straightforward once you break it down: UO = [(A7 × 4) + (A14 × 2) + A28] / (4 + 2 + 1) × 100, where A stands for average, calculated from buying pressure (BP) and true range (TR). BP is the close minus the minimum of the low or prior close. TR is the maximum of high or prior close minus the minimum of low or prior close. Then, Average7 is the sum of BP over seven periods divided by the sum of TR over seven, and similarly for 14 and 28.
How to Calculate the Ultimate Oscillator
To calculate it yourself, start with buying pressure (BP): that's the period's close minus the lower of that period's low or the prior close. Track these for summing over the last seven, 14, and 28 periods to get your BP sums. Next, true range (TR) is the higher of the current high or prior close minus the lower of the current low or prior close—sum those up the same way for TR sums. Then compute the averages: Average7 is BP sum over seven divided by TR sum over seven, and so on for 14 and 28. Finally, plug them into the weighted formula—multiply Average7 by 4, Average14 by 2, Average28 by 1, divide by 7, and multiply by 100.
What Does the Ultimate Oscillator Tell You?
This indicator ranges from 0 to 100, with below 30 as oversold and above 70 as overbought, much like the RSI. Signals come when price and indicator move oppositely, using a three-step method Larry Williams outlined. He built it to handle multiple timeframes, cutting down on false divergences that plague single-timeframe oscillators. For a buy signal, you need a bullish divergence with the lower low below 30, then the oscillator topping the high between those lows. Sell signals mirror that: bearish divergence with the higher high above 70, then dropping below the low between highs.
The Ultimate Oscillator vs. the Stochastic Oscillator
Compare it to the Stochastic Oscillator, which only uses one timeframe, while this one has three. The Ultimate doesn't usually have a signal line, unlike Stochastic, and their divergence-based signals differ due to the calculations.
Limitations of Using the Ultimate Oscillator
Be aware of its limits: the three-step method filters out bad trades but also skips good ones. Divergence doesn't show at every reversal, and waiting for the oscillator to cross the divergence high or low might mean missing the best entry as price has already moved. Don't use it alone—combine it with price analysis, other indicators, or fundamentals in your trading plan.
Related Concepts
Technical indicators in general use historical price and volume data to predict trends and entry/exit points—there are many types based on what you need. Popular ones include RSI for momentum, Bollinger Bands for volatility, and Fibonacci for support/resistance. The RSI, introduced by J. Welles Wilder in 1978, scales from 0 to 100, flagging overbought above 70 and oversold below 30.
The Bottom Line
In summary, the Ultimate Oscillator looks at seven, 14, and 28 periods with a weighted average to minimize volatility and signals, giving the 28-period the least weight. Make sure you fully grasp the calculations before using it—consult a professional if needed. This is all for informational purposes; check disclaimers for details.
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