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| The '''ultimate oscillator''' is a theoretical concept in [[finance]].
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| [[Larry R. Williams|Larry Williams]] developed the '''ultimate oscillator''' as a way to account for the problems experienced in most oscillators when used over different lengths of time.<ref>[http://www.asiapacfinance.com/trading-strategies/technicalindicators/UltimateOscillator AsiaPacFinance.com Trading Indicator Glossary]</ref>
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| The oscillator is a [[technical analysis]] oscillator developed by Larry Williams based on a notion of buying or selling "pressure" represented by where a day's closing price falls within the day's [[Average true range#Calculation|true range]].
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| 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.
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| : <math> bp = close - \min (low, prev\,close) </math>
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| 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.
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| : <math> tr = \max (high, prev\,close) - \min (low, prev\,close) </math>
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| The total buying pressure over the past 7 days is expressed as a fraction of the total true range over the same period. If <math>bp_1</math> is today, <math>bp_2</math> is yesterday, etc., then
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| : <math> avg_7 = {bp_1 + bp_2 + \cdots + bp_7 \over tr_1 + tr_2 + \cdots + tr_7 } </math>
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| 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.
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| : <math> UltOsc = 100 \times {4 \times avg_7 + 2 \times avg_{14} + avg_{28} \over 4 + 2 + 1 } </math>
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| Williams had specific criteria for a buy or sell signal. A buy signal occurs when,
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| * Bullish divergence between price and the oscillator is observed, meaning prices make new lows but the oscillator doesn't
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| * During the divergence the oscillator has fallen below 30.
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| * The oscillator then rises above its high during the divergence, i.e. the high in between the two lows. The buy trigger is the rise through that high.
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| The position is closed when the oscillator rises above 70 (considered overbought), or a rise above 50 but then a fallback through 45.
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| A sell signal is generated conversely on a bearish divergence above level 70, to be subsequently closed out below 30 (as oversold).
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| == References ==
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| {{reflist}}
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| *[http://www.stockcharts.com/education/IndicatorAnalysis/indic_ultimate.html Ultimate Oscillator] at StockCharts.com
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| *[http://www.chartfilter.com/reports/c52.htm Ultimate Oscillator] at ChartFilter.com
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| *[http://www.fool.com/investing/small-cap/2007/04/05/the-ultimate-buy-signal.aspx The Ultimate Buy Signal], Motley Fool
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| == Further reading == | |
| * ''The Ultimate Oscillator'', by Larry Williams, [[Technical Analysis of Stocks and Commodities]] magazine V.3:4 (140–141) ([http://store.traders.com/-v03-c04-ulti-pdf.html introduction])
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| {{technical analysis}}
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| [[Category:Technical indicators]]
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