Индикатор Ultimate Oscillator

What is the Ultimate Oscillator? – How to use Ultimate Oscillator indicator?

Ultimate Oscillator is a momentum indicator that integrates three different times periods within one value. By considering different time periods and using an elaborate decision mechanism, the tool hopes to reduce the sensitivity of momentum oscillators to recent data and instead focus better on long trends. Investors, especially those that dabble in active investment, will do well to use Ultimate Oscillator in their investment decision making.

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What is the Ultimate Oscillator?

The Ultimate Oscillator is a technical indicator that is used to maximize returns from price momentum analysis. It is an oscillator, like RSI (relative strength indicator), that guides the investor in better timing their exits and entry into the market, to maximize the returns on their investments. However, unlike other momentum oscillators, the Ultimate Oscillator uses three different time frames before generating the buy or sell signals within the market. Taking three different time frames allows the oscillator to integrate short-term and long-term analysis into one measure.

Like all momentum indicators, an Ultimate Oscillator has a value between 0-100. An Ultimate Oscillator will generate buy and sell signals on the basis of divergences between the oscillator and the price candles. Compared to other oscillators, this measure generates fewer buy and sell signals. The following topic will guide the investor on the structure of Ultimate Oscillator and its use in the market.

Who created the Ultimate Oscillator?

The Ultimate Oscillator was created by Larry Williams in the ’70s. The ’70s were the heyday for the introduction of new technical indicators that have since become an indispensable part of any good investor’s toolbox. Larry was one of the best stocks and commodity traders in the ’70s. He shared his intellectual baby with the “World Stocks & Commodities Magazine” in 1985. Since then, Ultimate Oscillator has gained fame as a tool that redeems many bad qualities of other oscillators.

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How Does Ultimate Oscillator Differ From Other Indicators?

For those investors that are familiar with momentum oscillators, the Ultimate Oscillator often resembles other oscillators such as RSI and stochastic oscillators, on the surface. However, the Ultimate Oscillator differs from other momentum oscillators in some key ways.

Use of multiple time periods:

First, the Ultimate Oscillator uses three different time periods for its measures instead of one. In contrast, RSI and stochastic oscillator use single time frame measures. This difference allows the Ultimate Oscillator to integrate short term and long-term analysis into one compound measure.

Different buy and sell signals:

Second, even though both the measures use divergence to generate buy and sell signals, the actual markers for buy and sell signals will be different. the Ultimate Oscillator will give different buy and sell signals for the same data because the formulae for Ultimate Oscillator is different as compared to the stochastic oscillator and RSI indicator.

For example, for the RSI indicator, only the absolute value is used to generate the buy and sell signals for the investor. RSI works on the principle of an asset being over-sold or over-bought. If an asset is over-sold, then the market is expected to realize this in a short while and start buying the asset. This will increase the price of an asset. A value of less than 30 indicates the asset is being oversold. Oversold assets are expected to retain their value and increase in price in the near term. Therefore, values under 30 give a sell signal.

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Similarly, with RSI, a value of above 70 indicates that the asset is over-bought. The market is expected to correct this mistake via increased selling. This, in-turn, will decrease the price of the asset. Therefore, above 70 values give a sell signal.

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The following description will show that the Ultimate Oscillator uses a different mechanism.

How do we calculate the Ultimate Oscillator values? Does one really need to know the formula for the Ultimate Oscillator?

Investors do not need to understand the calculation for Ultimate Oscillator in order to earn money from it. However, knowing the formula for Ultimate Oscillator will definitely help in comparing it with other measures and understanding the weaknesses of the Ultimate Oscillator.

The Ultimate Oscillator is a compound measure that takes its value from three different time periods. These time periods include the seven, fourteen and twenty-eight-day average values. Furthermore, the calculation also uses the Buying Pressure and True Range values. The following step-by-step guide checklist will detail how the Ultimate Oscillator values are calculated for a given day.

Step 1: Calculate the True Range value for the given day.

The formula for True Range is as following

True Range = Max (High, Prior Close) – Min (Low, Prior Close)

Some readers find the above formula a bit confusing. The same formulae can be restated as following

True Range for a given day = [whichever is bigger] (high or prior close) minus [whichever is lower] (low or prior close]

Ultimate Oscillator (UO)

Description

Many momentum oscillators use one time frame which causes them to turn very positive at the beginning of a major advance and then form a bearish divergence and overbought readings while the advance continues. The Ultimate Oscillator, developed by Larry Williams, attempts to correct this by using three different time periods (7, 14, and 28) to represent short, medium, and long-term market trends.

How this indicator works

Buy Signal:

  • A bullish divergence occurs. This is when the security’s price makes a lower low that is not confirmed by a lower low in the Oscillator.
  • During the bullish divergence, the low of the Oscillator falls below 30.
  • The Oscillator then rises above the highest point reached during the span of the bullish divergence.
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Sell signal:

  • A bearish divergence occurs. This is when the security’s price makes a higher high that is not confirmed by a higher high in the Oscillator.
  • During the bearish divergence, the high of the Oscillator rises above 70.
  • The Oscillator then falls below the lowest point reached during the span of the bearish divergence.

Calculation

Buying Pressure (BP) = Current Close – Minimum (Current Low or Previous Close).

True Range (TR) = Maximum (Current High or Previous Close) – Minimum (Current Low or Previous Close)

Average7 = Sum of BP for the past 7 days / Sum of TR for the past 7 days
Average14 = Sum of BP for the past 14 days / Sum of TR for the past 14 days
Average28 = Sum of BP for the past 28 days / Sum of TR for the past 28 days

Ultimate Oscillator = 100 * [(4 * Average7) + (2 * Average14) + Average28] / (4 + 2 + 1)

ATR is the average of true ranges over the specified period. ATR measures volatility, taking into account any gaps in the price movement.

The RSI, developed by J. Welles Wilder, is a momentum oscillator that measures the speed and change of price movements.

Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with. As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. Past performance is no guarantee of future results.

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