What is Ultimate Oscillator

Developed by Larry Williams in 1976 and featured in Stocks & Commodities Magazine in 1985, the Ultimate Oscillator is a momentum oscillator designed to capture momentum across three different timeframes. The multiple timeframe objective seeks to avoid the pitfalls of other oscillators. Many momentum oscillators surge at the beginning of a strong advance and then form a bearish divergence as the advance continues. This is because they are stuck with one timeframe. The Ultimate Oscillator attempts to correct this fault by incorporating longer timeframes into the basic formula. Williams identified a buy signal based on a bullish divergence and a sell signal based on a bearish divergence.

Ultimate Oscillator Indicator

The Ultimate Oscillator is a range-bound Oscillator indicator that fluctuates between the values of 0 and 100. It was developed to include several timeframes to smooth out the movement of the indicator and provide a more reliable indicator of momentum, with fewer false divergences.

How To Calculate Ultimate Oscillator Indicator

Formula:- Buying Pressure = Close – TrueLow BP = Close – Minimum(Low or Prior Close)

  • TrueRange = TrueHigh – TrueLow TR = Maximum(High or Prior Close) – Minimum(Low or Prior Close)
  • Average7 = (7-period BP Sum) / (7-period TR Sum)
  • Average14 = (14-period BP Sum) / (14-period TR Sum)
  • Average28 = (28-period BP Sum) / (28-period TR Sum)
  • UO = 100 x [(4 x Average7)+(2 x Average14)+Average28]/(4+2+1)

Why Use Ultimate Oscillator Indicator

False divergences are very common in oscillators that analyse only one timeframe, as the oscillator is then directly correlated to the price trend. However, the oscillator may start falling even after the price continues to rise. However, the Ultimate Oscillator uses multiple timeframes, smoothening the indicator’s movements and providing a reliable momentum indicator.

How to Use Ultimate Oscillator Trading Strategy

Bullish Scenario: Like any oscillator, if the price moves in an uptrend, the indicator would move in the same direction. As it oscillates between 0 and 100, when the UO moves above 50, it is generally considered a bullish scenario. 

Bearish Scenario:- Similarly, if the UO moves below 50, it is generally considered to indicate a downtrend, i.e. a bearish scenario.

Building Ultimate Oscillator Trading Strategy in Mudrex

Strategy:- 

BUY:- UO crosses up 55

SELL:- UO crosses down 45

TIME FRAME:- 4Hrs

Creating on Mudrex:- 

We will use 2 UO indicator blocks. One for selling and One for buying.

For buying, we will use the following settings:-

For selling, we will use the following settings:-

Final Strategy:-

Testing:- 

Running on Binance Futures: BTC/USDT with tick interval of 4H yielded an overall profit of 110.22%

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