Ultimate Oscillator

Ultimate Oscillator

Ultimate Oscillator

There are many technical tools one can use when analyzing data to make a sound trading prediction. Those tools cannot guarantee that you will win every trade, but they can certainly increase your chances a lot. Among the most common tools are oscillators, which can be extremely powerful because they take a long period of time into account, so they can provide you with very useful information. Every trader can adapt oscillators to his/her trading strategy, and in this article we will explain how one particular type of oscillators works – the ultimate oscillator. Keep reading and get informed!

Ultimate Oscillator | Definition

The ultimate oscillator is a technical indicator invented by Larry Williams. It uses the weighted average of three different time periods to reduce volatility and false transaction signals associated with many other indicators that rely on a single time period. As you can guess by its name, it belongs to the group of tools which are called Oscillators.

This is a range-bound indicator, meaning the value fluctuates between 0 and 100. Levels below 30 are deemed to be oversold, and levels above 70 are considered overbought (which is very similar to the RSI). Although it’s not as famous as RSI, it can be very useful in finding bullish or bearish divergences that a price makes. After this short introduction, let us now introduce you to the way ultimate oscillators can be used in your analysis. Stay with us!

Ultimate Oscillator | Common Strategy

The first thing you should consider when using your ultimate oscillator is the value your oscillator has. As already mentioned, this value can be between the 0 and 100 level, but most of the time it stays between 30 and 70. Therefore, the actual middle range is the 50 level, and that’s the level you should take into consideration while looking for divergences between the price and the oscillator. One of the two (price or oscillator) will always lie. It’s always safer to stay with the oscillator, as the oscillator takes into account a bigger period of time than the actual price.

If you have a bearish trend, the market you’re observing will make a low in the 10-20 area, and the second low won’t be confirmed by the oscillator. In this case, the price is making two consecutive lows, but at the same time, the oscillator will be having the second move above the 20 level – that means this divergence is bullish, as it takes a Trend Line and connects the two lows. The rising trend will be eventually shown, due to the connection of the two lows.

Ultimate Oscillator | Conclusion

Without any doubt, the ultimate oscillator can be a very helpful tool. It uses three different time frames, which makes it more reliable, especially in long-term trading. It’s not very complicated, so we think you will learn how to handle it without any problems. It will take you some time, though, but it is an investment of a great importance for your trading future, so don’t wait and start learning about the ultimate oscillator right away!

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FURTHER READING:

1. Trade Your Way To Financial Freedom (Van K. Tharp, 1998)
2. Trading By The Minute (J. Ross, 1994)
3. Stock trading, information production, and executive incentives  (Qiang Kanga, Qiao Liu-2008)
4. The Mathematics Of Money Management: Risk Analysis Techniques For Traders (R. Vince, 1992)
5. Options and Options Trading (RW Ward – 2004)

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Author: Ben Prescott
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