Stock Diamond - Technical Analysis Education

The Ultimate Oscillator is sensitive to buying and selling pressure and offers reliable signals.

• Larry Williams developed the Ultimate Oscillator to address the problems experienced with most oscillators when used over different lengths of time.
• Signals are based on divergence and a breakout in the Oscillator's trend, as well as overbought and oversold levels.

Williams noted that the value of oscillators can vary greatly depending on the number of time periods used during the calculation. The Ultimate Oscillator, therefore, uses weighted sums of three oscillators which represent short, intermediate, and long term market cycles (7, 14, & 28-period). It is plotted as a single line on a vertical scale of 0 to 100.

The three oscillators are based on Williams's definitions of buying and selling "pressure."

Williams recommends that you initiate a trade following a divergence and a breakout in the Ultimate Oscillator's trend.

Signals

A Buy signal is offered when:

1. A positive or bullish divergence occurs between the Oscillator and the price.
2. The Oscillator falls below 30 and then rises above the previous high established during the divergence (the actual buy signal).

A Sell Signal is offered when:

1. A negative or bearish divergence occurs between the Oscillator and the price.
2. The Oscillator rises above 70 and then falls below the previous low established during the divergence (the actual sell signal).

Closing existing positions:

1. Close long positions when the oscillator exceeds 70.
2. Close short positions when the oscillator goes below 30.

Please remember that, as with most indicators, these signals should be confirmed by other indicators before being acted upon.