Ultimate Oscillator

The Ultimate oscillator was developed by Larry Williams in 1976 to capture momentum across three different timeframes to decrease the volatility and false transaction signals that are connected with many other indicators.

The values of the indicator range from zero to 100. The overbought zone is located where the values are below 30 and the oversold zone is where the values are above 70.

Calculation

Step 1: Calculation of Buying Pressure (BP) to determine the general direction of price.

BP = Close - Minimum (Low or Prior Close)


Step 2: Measure Buying Pressure relative to the True Range (TR) to find the actual gain or loss.

TR = Maximum (High or Prior Close) - Minimum (Low or Prior Close)


Step 3: Calculate the average for each timeframe involved.

avgx = bp1 + bp2 + ... + bpx
tr1 + tr2 + ... + trx

Step 4:

UltOsc = 100 x 4 * avgx + 2 * avgy + avgz
4 + 2 + 1

Signals

Close long positions:

  • After the oscillator rises above 50 and then falls below 45
  • When the oscillator rises above 70

Sell:

  • When the oscillator goes above 50
  • When the oscillator fell below the minimum level

Close short positions:

  • When the oscillator goes above 65
  • When the oscillator falls below 30