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Ultimate Oscillator

In the April, 1985 issue of Technical Analysis of Stocks & Commodities magazine Larry Williams stated,

"The trouble for most oscillator workers was, and has continued to be, that while frequently oscillators lead sometimes they lead far too early and, instead of buying a bottom, you are buying falling daggers and getting sliced up. Even the best oscillators consistently give premature buy and sell signals."

The Ultimate Oscillator combines the weighted sums of price action from three different n-periods of time to create an oscillator that ranges from 0 to 100. Values of 70 and above are considered to be overbought while values of 30 and below are considered to be oversold. The time frames typically used for the Ultimate Oscillator are 7 periods (short-term), 14 periods (intermediate-term), and 28 periods (long-term). It’s important to note that these time periods overlap each other. In other words, the 28-period time frame encompasses both the 14-period time frame and the 7-period time frame.

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Interpretation

Larry Williams defined very specific criteria for generating buy and sell signals using the Ultimate Oscillator.

According to Williams, a buy signal occurs when...

1. There is Bullish divergence between the price and Ultimate Oscillator (price makes lower lows while oscillator makes higher lows)
2. During the divergence the oscillator has fallen below 30
3. The Ultimate Oscillator has risen above its high created during the divergence (i.e. the high between the two lows)

The buy position is closed when the Ultimate Oscillator rises above 70, or rises above 50 and then falls back below 45.

Conversely, a sell signal occurs when...

1. There is Bearish divergence between price and the Ultimate Oscillator (price makes higher highs while oscillator makes lower highs)
2. During the divergence the oscillator has risen above 70
3. The Ultimate Oscillator has fallen below its low created during the divergence (i.e. the low between the two highs)

The sell position is closed when the Ultimate Oscillator falls below 30 or rises back above 65.

The materials presented on this website are solely for informational purposes and are not intended as investment or trading advice. Suggested reading materials are created by outside parties and do not necessarily reflect the opinions or representations of Capital Market Services LLC. Please refer to our risk disclosure page for more information.