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CandleFocus Glossary Editor
The Ultimate Oscillator is a technical indicator used by stock traders to help gauge momentum. It was developed in 1976 by Larry Williams, who called it the "ultimate" oscillator due to its ability to accurately express stock trend direction over a period of time. The ultimate oscillator was designed to measure the strength of a trend by taking into account the momentum of both price action and the underlying momentum of a financial instrument.
The Ultimate Oscillator attempts to gauge the momentum of a stock by taking into account the price's three-day, seven-day, and fourteen-day trends. The shorter timeframe has the most weight in the calculation, while the longer timeframe has the least weight. The oscillator value is created by comparing the relative strength of each of the three trends. If all three trends are strong, the oscillator value increases.
The oscillator is used as an indicator of a stock's momentum and is often used to identify potential buy and sell signals. Buy signals typically occur when there is a bullish divergence and the oscillator value dips below 30, which is the oversold threshold. A bullish divergence takes place when the stock's price makes a higher high but the oscillator value fails to exceed its prior high. When the oscillator then rises above the divergence high, it can signal that the stock is gaining more momentum and may be ready to breakout.
Alternatively, a sell signal can occur when there is a bearish divergence, the divergence high is above 70, and the oscillator falls below the divergence low. A bearish divergence is when the stock’s price makes a lower low, but the oscillator does not fall to a corresponding low. When the oscillator then falls below the corresponding low, it can signal that the stock is losing momentum and may be ready for a pullback.
The Ultimate Oscillator is a powerful tool used by technical traders to gauge market momentum and identify potential buy and sell signals before other traders do. The oscillator provides traders with additional information beyond just the trend line and helps traders make more informed investment decisions.
The Ultimate Oscillator attempts to gauge the momentum of a stock by taking into account the price's three-day, seven-day, and fourteen-day trends. The shorter timeframe has the most weight in the calculation, while the longer timeframe has the least weight. The oscillator value is created by comparing the relative strength of each of the three trends. If all three trends are strong, the oscillator value increases.
The oscillator is used as an indicator of a stock's momentum and is often used to identify potential buy and sell signals. Buy signals typically occur when there is a bullish divergence and the oscillator value dips below 30, which is the oversold threshold. A bullish divergence takes place when the stock's price makes a higher high but the oscillator value fails to exceed its prior high. When the oscillator then rises above the divergence high, it can signal that the stock is gaining more momentum and may be ready to breakout.
Alternatively, a sell signal can occur when there is a bearish divergence, the divergence high is above 70, and the oscillator falls below the divergence low. A bearish divergence is when the stock’s price makes a lower low, but the oscillator does not fall to a corresponding low. When the oscillator then falls below the corresponding low, it can signal that the stock is losing momentum and may be ready for a pullback.
The Ultimate Oscillator is a powerful tool used by technical traders to gauge market momentum and identify potential buy and sell signals before other traders do. The oscillator provides traders with additional information beyond just the trend line and helps traders make more informed investment decisions.