Ultimate Oscillator
short_period = 7 (3–14) • medium_period = 14 (7–28) • long_period = 28 (14–56) Overview
The Ultimate Oscillator addresses a common problem with momentum oscillators: their tendency to generate false divergence signals due to correlation with short-term price movements. Published in Stocks & Commodities Magazine in 1985, Williams' solution was to incorporate three different timeframes (typically 7, 14, and 28 periods) with weighted averaging that gives more importance to shorter timeframes. This multi-timeframe approach smooths out the indicator's movements and provides more reliable signals, particularly for divergence trading.
The calculation measures buying pressure relative to true range across all three timeframes, where buying pressure equals Close minus the minimum of Low or Prior Close. By dividing buying pressure by true range and applying different weights (4x for short-term, 2x for medium-term, 1x for long-term), the oscillator creates a composite momentum reading that ranges from 0 to 100. This design ensures that the indicator captures both immediate price action and longer-term momentum trends, reducing whipsaws while maintaining sensitivity to genuine trend changes.
Interpretation & Trading Signals
Buy Signal Requirements:
- Bullish Divergence: Price makes lower low while oscillator makes higher low
- Oversold Condition: Divergence low must be below 30 on the oscillator
- Confirmation: Oscillator rises above the high of the divergence pattern
- Three-Step Process: All conditions must be met for valid signal
Sell Signal Requirements:
- Bearish Divergence: Price makes higher high while oscillator makes lower high
- Overbought Condition: First divergence high must be above 70
- Confirmation: Oscillator drops below the low of the divergence
- Patience Required: Wait for all conditions before entering trade
Key Levels & Interpretation:
- Overbought: Readings above 70 suggest potential selling pressure
- Oversold: Readings below 30 indicate potential buying opportunity
- Neutral Zone: 30-70 range where most price action occurs
- Divergence Priority: Focus on divergences rather than absolute levels
Example Usage
Code examples will be available once the Rust implementation is complete.
Performance Analysis
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