Ultimate Oscillator
Definition
The Ultimate Oscillator combines buying pressure measured over three different time periods (7, 14, and 28 periods) into a single reading. The idea is that using multiple timeframes reduces false signals compared to single-period oscillators. It runs from 0 to 100.
Formula
Buying Pressure (BP) = Close - min(Low, Previous Close)
True Range (TR) = max(High, Previous Close) - min(Low, Previous Close)
Average7 = Sum of BP over 7 periods / Sum of TR over 7 periods
Average14 = Sum of BP over 14 periods / Sum of TR over 14 periods
Average28 = Sum of BP over 28 periods / Sum of TR over 28 periods
Ultimate Oscillator = 100 x [(4 x Average7) + (2 x Average14) + Average28]
/ (4 + 2 + 1)How to Interpret It
Readings above 70 are considered overbought; below 30 is oversold. The multi-timeframe approach means the Ultimate Oscillator responds faster than a 28-period oscillator but is smoother than a 7-period one.
Because it blends three periods together, it tends to be less jumpy than RSI or Stochastic. The tradeoff is that it reacts more slowly to sharp moves.
Typical Strategy
The textbook approach is a multi-step process: first, look for a bullish divergence where the price makes a new low but the oscillator makes a higher low. Then wait for the oscillator to break above the high it made between the two lows. The exit is at 70 or if the setup fails.
In practice, many traders simplify this to just watching for the oscillator to drop below 30 and then recover, similar to how they would use RSI.