The Curious Investor

Sponsored Ad

And, today, we wrap up the series on Technical Indicators with another development of Larry Williams, the Ultimate Oscillator. You may remember the name Larry Williams from another ocillator which is named for him, the Williams %R.

The Ultimate Oscillator was designed as a smoothed oscillator in hopes of eliminating the false signals and wild fluctuations that you see in other single-time period oscillators like the Williams %R. It uses the weighted sum of an oscillator based on three periods - traditionally 7, 14, and 28 days. It is then scaled to oscillate between 0 and 100 and the end result is a chart which looks vaguely similar to RSI. It’s calculation, however, is done in a relatively complex method which is unknown to me but has been described as based on Larry Williams’ definitions of “buying and selling pressure” which you could say is similar to how the RSI is derived.

So here we have an example of the Ultimate Oscillator (the last chart) graphed with the Williams %R and the RSI. As this is our last post on the subject of oscillators and technical indicators in general, I think it’s time for a quiz. Rather than mark off the divergences and buy/sell signals on this chart, I’d like you to find them. Please refer to the buy and sell signals that I wrote about in the Williams %R and RSI posts. The basic principles are the same for the Ultimate Oscillator. The key to spotting trend reversals is to find times when the oscillator’s movement diverges with the price movement. Overbought and oversold levels for the Ultimate Oscillator are usually set at 70 and 30 respectively though at times you might increase your tolerance to 80 and 20.

Bookmark to: