Ultimate Oscillator

Type

Momentum oscillator

Short introduction

Larry Williams developed the Ultimate Oscillator. It is a combination of his Accumulation/Distribution Oscillator and Wilder's RSI. With this combination, Williams tries to limit exaggerated phases more exactly.

Statement

Oscillators generally have the disadvantage that they show exaggerations up or down too early. The Ultimate Oscillator tries to eliminate this disadvantage by calculating and adding three different time periods with different weightings. The result is an indicator that fluctuates between 0 and 100, with the 50 as the centreline. The calculation is so complicated that no derivation is made here. You can find the formulas in the next section.

Formula/calculation

B_t = C_t - TL_t

TR_t = TH_t - TL_t

SB_x = B_t + B_t-1 + ... + B_t-x+1

SB_y = B_t + B_t-1 + ... + B_t-y+1

SB_z = TR_t + TR_t-1 + ... + TR_t-z+1

STR_x = TR_t + TR_t-1 + ... + TR_t-x+1

STR_y = TR_t + TR_t-1 + ... + TR_t-y+1

STR_z = TR_t + TR_t-1 + ... + TR_t-z+1

ULT = (SB_x ÷ STR_x) × 4 + (SB_y ÷ STR_y) × 2 + (SB_z ÷ STR_z)

where:

B_t = Buying pressure at time t

C_t = Close at time t

TL_t True low at time t; daily low or previous day's close, depending on which price is the lower one

TH_t = True high at time t; daily high or previous day's close, depending on which price is the higher one

TR_t = True range at time t

SB = The sum of the buying pressure values for the periods x, y and z

STR = The sum of the true range values for the periods x, y and z

ULT = Ultimate Oscillator

Interpretation

There are three interpretations:

• First, the section with the centre line. If the indicator crosses the centre line from bottom to top, this is a buy signal. If the indicator crosses the midpoint line from top to bottom, this is a sell signal.
• Secondly, when leaving extreme zones. The extreme zones are usually 30 and 65. Leaving the upper extreme range is a sell signal, leaving the lower extreme range is a buy signal.
• And thirdly, the search for divergences. A negative signal is generated when the underlying is still climbing new highs while the indicator is not climbing any new highs. A positive signal is generated when the actual price trend is still establishing new lows but the indicator is no longer establishing new lows.

Default setting

Median (centre line): 50

The three calculation periods are 7, 14, and 28 days by default. As a rule, the extreme zones are indicated at 30 and 65.