Ultimate oscillator

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The ultimate oscillator is a theoretical concept in finance developed by Larry Williams as a way to account for the problems experienced in most oscillators when used over different lengths of time. [1]

Ultimate oscillator Ultimate oscillator.jpg
Ultimate oscillator

The oscillator is a technical analysis indicator based on a notion of buying or selling "pressure" represented by where a day's closing price falls within the day's true range.

The calculation starts with "buying pressure", which is the amount by which the close is above the "true low" on a given day. The true low is the lesser of the given day's trading low and the previous close.

The true range (the same as used in average true range) is the difference between the "true high" and the true low above. The true high is the greater of the given day's trading high and the previous close.

The total buying pressure over the past 7 days is expressed as a fraction of the total true range over the same period. If is today, is yesterday, etc., then

The same is done for the past 14 days and past 28 days and the resulting three ratios combined in proportions 4:2:1, and scaled to make a percentage 0 to 100. The idea of the 7-, 14- and 28-day periods is to combine short, intermediate and longer time frames.

Williams had specific criteria for a buy or sell signal. A buy signal occurs when,

The position is closed when the oscillator rises above 70 (considered overbought), or a rise above 50 but then a fallback through 45.

Ultimate oscillator divergence bullish Ultimate oscillator divergence bullish.jpg
Ultimate oscillator divergence bullish
Ultimate oscillator divergence bearish Ultimate oscillator divergence bearish.jpg
Ultimate oscillator divergence bearish

A sell signal is generated conversely on a bearish divergence above level 70, to be subsequently closed out below 30 (as oversold).[ citation needed ]

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