# Ultimate Oscillator

Developed by Larry Williams and first described in a 1985 article for Technical Analysis of Stocks and Commodities magazine, the "Ultimate" Oscillator combines a stock's price action during three different time frames into one bounded oscillator. Values range from 0 to 100 with 50 as the center line. Oversold territory exists below 30 and overbought territory extends from 70 to 100.

Study Type: Stand-alone

## Description

Three time frames are used by the Ultimate Oscillator and can be specified by the user. Typically values of 7-periods, 14-periods and 28-periods are used. Note that these time periods all overlap, i.e. the 28-period time frame includes both the 14-period time frame and the 7-period time frame. This means that the action of the shortest time frame is included in the calculation three times and has a magnified impact on the results.

## Formula

• Calculate period's "True Low (TL)". TL = the lower of period's low or yesterday's close.
• Calculate period's "Buying Pressure (BP)". BP = period's close - period's TL.
• Calculate period's "True Range (TR)". TR = the higher of 1.) period's High - period's Low; 2.) period's High - Yesterday's Close; 3.) Yesterday's Close - period's Low.
• Calculate BPSum1, BPSum2, and BPSum3 by adding up all of the BPs for each of the three specified time frames.
• Calculate TRSum1, TRSum2, and TRSum3 by adding up all of the TRs for each of the three specified time frames.
• The Raw Ultimate Oscillator (RawUO) is equal to: 4 * (BPSum1 / TRSum1) + 2 * (BPSum2 / TRSum2) + (BPSum3 / TRSum3)
• The Final Ultimate Oscillator is equal to: ( RawUO / (4 + 2 + 1) ) * 100

It is important to remember that overbought does not necessarily imply time to sell and oversold does not necessarily imply time to buy. A security can be in a downtrend, become oversold and remain oversold as the price continues to trend lower. Once a security becomes overbought or oversold, traders should wait for a signal that a price reversal has occurred. One method might be to wait for the oscillator to cross above or below -50 for confirmation. Price reversal confirmation can also be accomplished by using other indicators or aspects of technical analysis in conjunction with the Ultimate oscillator.

## Parameters

• Period 1: (7) - the number of bars, or interval, used in the first calculation
• Period 2: (14) - the number of bars, or interval, used in the second calculation
• Period 3: (28) - the number of bars, or interval, used in the third calculation