Ultimate Oscillator

The Ultimate Oscillator displays a value that generates three oscillators representing short, intermediate, and long term market cycles. The short and intermediate values are multiplied by a scaling factor in order to maintain proportionality between the varying lengths. Each cycle length is integrated in the combined value returned by the Ultimate Oscillator. The two horizontal lines represent the 30% and 70% overbought and oversold lines.

 

Pane: Bottom

 

Chart Types: All

 

Formula

 

 

TL = True Low

TR = True Range

B = Buying Pressure = (Ct-TLt)

n1 = Period 1

n2 = Period 2

n3 = Period 3

 

Properties

 

Period1: Enter the number of time periods in the short-term cycle. The application uses a default value of 14.

 

Period2: Enter the number of time periods in the intermediate term cycle. The application uses a default value of 21.

 

Period3: Enter the number of time periods in the long term cycle. The application uses a default value of 28.

 

Overbought Level: The application uses a default value of 70.

 

Oversold Level: The application uses a default value of 30.

 

Interpretation

 

The Ultimate Oscillator, developed by Larry Williams, compares an instrument’s price with its price x-periods ago. Because Williams noted that the value of this type of oscillator can vary greatly depending on the number of time periods utilized in the calculation, he assigned to this oscillator a single line that generates weighted sums of three oscillators, each using a different bar length.

 

Williams singled out divergences between the Ultimate Oscillator and the instrument's price activity in addition to a breakout in the trend of the oscillator values as the most significant action signals. A buy signal occurs with a bullish divergence, when the instrument’s price reaches a lower low that is not followed by a lower low in the oscillator. Conversely, when a market’s price reaches a higher high not followed by a higher high in the oscillator value, a bullish divergence occurs, setting a sell signal.

 

Literature