Ultimate Oscillator Indicator | Indicator Series

Asset Momentum 

The market never stays static. The price of an asset (a security or commodity) gains and loses momentum over time. With so many market variables at play, it can be difficult to track how that asset’s momentum factors into the bigger picture. 

The ultimate oscillator indicator (UO) is a financial analysis tool meant to help investors make sense of an asset’s momentum and incorporate that momentum into their trading choices. 

What is the Ultimate Oscillator Indicator? 

The UO is a type of technical tool designed to help track stock momentum while reducing something called false divergence. A divergence occurs when the price of an asset goes in the opposite direction of what an indicator or technical analysis tool predicts. When a statistical tool can’t account for a sudden price change correctly, you may see a false divergence that is not indicative of the stock’s true performance. False divergences lack real-world context. They are only as informative as the statistical model that detected them.  Access the economic calendar for your trading strategies to see upcoming news events on Tradingview.

At its heart, the ultimate oscillator is a measure of buying pressure versus true range. Buying pressure is derived from a stock’s closing price minus its lowest price for a given period. True range refers to the highest stock price for a given period minus the lowest price. These are the variables upon which the tool is built. 

False divergences are common in oscillators which only track a single time frame. The UO counteracts this effect by tracking asset momentum over three different time frames and weighing each one appropriately, with the greatest statistical weight being in the shortest time frame. 

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What is the Ultimate Oscillator Used For? 

The ultimate oscillator expresses numerical values on a range of 0-100. If the value that the oscillator produces is below 30 on the 100-point range then the asset is considered to be oversold or selling for less than its base price. If the value exceeds 70, the asset is considered to be overbought or sold for greater than its base price. 

Therefore, the ultimate oscillator indicator is used to assist investors and brokers with three things: 

  1. Tracking asset momentum over multiple periods of time.
  2. Eliminating confusion from false divergences common to other oscillators 
  3. Indicating when an asset should be bought or sold based on its momentum 

How Can You Use the Ultimate Oscillator to Your Advantage? 

An ultimate oscillator is a useful tool for informing investor behavior. If the oscillator detects a divergence, the oscillator will trigger either a buy or sell warning based on where the value began and where it ended relative to the 100-point range. For the warnings to trigger, a complex set of criteria must be met. This ensures that the ultimate oscillator operates with an added level of reliability. 

Savvy investors can use the oscillator’s statistical method, and the information obtained from the model, to fully understand their asset’s momentum over time and predict whether they should buy or sell that asset.  

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