Ultimate Oscillator
Larry Williams' Ultimate Oscillator combines buying pressure over three horizons, 7, 14 and 28 periods, to reduce the false signals of single-period oscillators.
It ranges from 0 to 100: below 30 the stock is considered oversold, above 70 overbought. By combining three different periods, it reacts less to the moves of a single day.
How it's calculated
For each period: buying pressure = close − the lower of low and previous close; true range = the higher of high and previous close − the lower of low and previous close. For 7, 14 and 28 periods you calculate the average = sum of buying pressures / sum of true ranges. Ultimate Oscillator = 100 × (4 × average 7 + 2 × average 14 + average 28) / 7.
Worked example
If the averages are 0.60 over 7 periods, 0.55 over 14 and 0.50 over 28, the Ultimate Oscillator is 100 × (4 × 0.60 + 2 × 0.55 + 0.50) / 7 = 100 × (2.40 + 1.10 + 0.50) / 7 = 100 × 4.00 / 7 = 57.1.
How to read it
Values between 30 and 70 are neutral. The classic signal is a divergence: the price makes a new low but the oscillator doesn't, with values below 30, and then rises above the intermediate high.
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