Technical Analysis

Ultimate Oscillator

Larry Williams recommended that you should open a position when a divergence appears. You should buy if:

• a bull divergence appeared: the prices have reached a lower minimum that hasn't been confirmed by a lower minimum of the oscillator;

• the oscillator fell below 30 when such bull divergence appeared;

• then the oscillator rose above the maximum level reached in the time of bull divergence forming. This is the moment when you should buy.

Close long positions if:

• the oscillator rose above 50 and then fell below 45;

• the oscillator rose above 70 (sometimes you'd better wait till it drops below 70);

• sale signals appeared.

Sell if:

• вa bear divergence appeared: the prices have reached a higher maximum that hasn't been confirmed by a higher maximum of the oscillator;

• the oscillator grew above 50 when at a bear divergence;

• the oscillator fell below the minimum level reached in the time of bear divergence forming.

Close short positions if:

• the oscillator grew above 65;

• the oscillator fell below 30

• purchase signals appeared.

Calculation:

1. Define current "True Low" (TL) — the least of two values: the current minimum and the precious closing price.
   

   TL (i) = MIN (LOW (i) || CLOSE (i - 1))

   
   

2. Find current "Buying Pressure" (BP). It is equal to the difference between current closing price and current True Low.
   

   BP (i) = CLOSE (i) - TL (i)

   
   

3. Define the "True Range" (TR). It is the greatest of the following differences: current maximum and minimum; current maximum and previous closing price; current minimum and previous closing price.
   

   TR (i) = MAX (HIGH (i) - LOW (i) || HIGH (i) - CLOSE (i - 1) || CLOSE (i - 1) - LOW (i))

   
   

4. Find the sum of BP values for all three periods of calculation:
   

   BPSUM (N) = SUM (BP (i), i)
   

   
   

5. Find the sum of TR values for all three periods of calculation:
   

   TRSUM (N) = SUM (TR (i), i)

   
   

6. Calculate the "Raw Ultimate Oscillator" (RawUO)
   

   RawUO = 4 * (BPSUM (1) / TRSUM (1)) + 2 * (BPSUM (2) / TRSUM (2)) + (BPSUM (3) / TRSUM (3))
   

   
   

7. Calculate the "Ultimate Oscillator" (UO) value according to the formula:
   

   UO = ( RawUO / (4 + 2 + 1)) * 100
   

   
   

Where:
MIN — means the minimum value;
MAX — the maximum value;
|| — a logical OR;
LOW (i) — the minimum price of the current bar;
HIGH (i) — the maximum price of the current bar;
CLOSE (i) — the closing price of the current bar;
CLOSE (i — 1) — the closing price of the previous bar;
TL (i) — the True Low;
BP (i) — the Buying Pressure;
TR (i) — the True Range;
BPSUM (N) — the mathematical sum of BP values for an n period (N equal to 1 corresponds with i=7 bars; N equal to 2 corresponds with i=14 bars; N equal to 3 corresponds with i=28 bars);
TRSUM (N) — the mathematical sum of TR values for an n period (N equal to 1 corresponds with i=7 bars; N equal to 2 corresponds with i=14 bars; N equal to 3 corresponds with i=28 bars);
RawUO — "Raw Ultimate Oscillator";
UO — stands for Ultimate Oscillator.

Source Code