Ultimate Oscillator

Overview

The Ultimate Oscillator uses weighted sums of 3 oscillators (typically 7, 14 and 28 period time frames) to smooth out the variations that occur in indicators which only use one time period. The oscillator is plotted as a single line from 0 to 100.

The ultimate oscillator was developed by Larry Williams.

Formula

  1. True Low :   TL(t) = min(low(t), close(t-1))
  2. Buy Pressure :   BP(t) = close(t) - TL(t)
  3. True Range :   TR(t) = max(high(t) - low(t), high(t) - close(t-1), close(t-1) - low(t))
  4. Buy Pressure Sums over 1st period (resp. 2nd and 3rd) :   BPSum(p1) = BP(t) + ... + BP(t-p1)
  5. True Range Sums over 1st period (resp. 2nd and 3rd) :   TRSum(p1) = TR(t) + ... + TR(t-p1)
  6. Raw Ultimate Oscillator :   RawUO = 4 * (BPSum(p1) / TRSum(p1)) + 2 * (BPSum(p2) / TRSum(p2)) + (BPSum(p3) / TRSum(p3))
  7. Final Ultimate Oscillator :   UO = 100 * (RawUO / (4 + 2 + 1))

Parameters

The Ultimate Oscillator has 3 parameters for the 3 periods over which the buy pressures and true ranges are calculated.

Interpretation

A buy signal appears when:

  • There is a bullish divergence (the price reaches a lower low but the Ultimate Oscillator does not)
  • The Ultimate Oscillator falls below 30 (oversold territory) and then rises above the highest point reached during the bullish divergence

A sell signal appears when:

  • There is a bearish divergence (the price reaches a higher high but the Ultimate Oscillator does not)
  • The Ultimate Oscillator rises above 50 and then falls below the lowest point reached during the bearish divergence

A long position should be closed when:

  • A sell signal (described above) occurs OR
  • The Ultimate Oscillator rises above 50 and then falls below 45, or it rises above 70

A short position should be closed when:

  • A buy signal (described above) occurs OR
  • The Ultimate Oscillator rises above 65, or falls below 30

 

This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance.

Trading FX and/or CFDs on margin are high risk and not suitable for everyone. Losses can exceed investment.