| Characteristic: | Trend Reversal Indicator | ||
| Parameter Defaults: | Period 1 | 7 | controls the measurement period for the short ATR |
| Period 2 | 14 | controls the measurement period for the medium ATR | |
| Period 3 | 28 | controls the measurement period for the long ATR | |
| Plots: | Ult_Osc | ||
Developed by Larry Williams, the Ultimate Oscillator indicator is calculated by taking the sums of the True Range of the number of bars specified by the three input parameters. These three sums are divided into the sums of the distance from the close to the low. This value is weighted for the three lengths and plotted on the chart.
Many users believe divergences in the Ultimate Oscillator as well as a breakout in the trend of the indicator are significant signals. For example, a bullish divergence is said to occur if market prices reach a new low but the indicator does not follow. Conversely, a bearish divergence is said to occur if market prices reach a new high but the indicator does not follow.
Williams recommended that you initiate a trade following a divergence and a breakout in the Ultimate Oscillator's
trend. These can be summarized:
Buy
- A bullish divergence occurs.
- The Oscillator rises above the highest point reached during the span of the bullish divergence. This is the point at which you buy.
Sell
- A bearish divergence occurs.
- The Oscillator falls below the lowest point reached during the span of the bearish divergence.
