Approved for Advanced Traders

The Ultimate Oscillator For Binary Options?

In a previous article we found out that the Awesome Oscillator is in fact awesome. Is the Ultimate Oscillator really the ultimate. This oscillator was developed in 1976 by Larry Williams and is meant to capture multiple time frames in one tool. I like multiple time frame analysis, find out if I like this tool.


What is this Ultimate Oscillator For Binary Options?

Larry Williams developed the Ultimate Oscillator in the mid 70’s. His idea was to incorporate multiple time frames into one oscillator in order to weed out false signals. He wanted to alleviate the necessity of using more than one chart time frame, an admirable endeavor. He found, as is right, that it is useful to use multiple time frame analysis with most oscillators to prevent whipsaws and false signals. In order to do this he measures daily buying and selling pressure then measures those pressures over time.

The Ultimate oscillator is a complicated three part equation. The first step is to measure the Buying Pressure (BP). BP is today’s closing price minus the lower of yesterday’s closing price or today’s lowest price. Once you have that then it is time to compare BP to the True Range (TR) over three different time periods, usually 7, 14 and 28 days. The next step is to create an average of each period and then to created a weighted average of the averages. This is then plotted as an oscillator ranging between 0 and 1 or 0 and 100. Signals are created by divergences, oversold/overbought conditions and crossovers.



How To Use The Ultimate Oscillators

Mr. Williams has a very specific set of criteria for the buy and sell signals. There are three things to look for. For a bull signal you must first spot a bullish divergence in a bear move. This move could be pull back or correction of a bull market or full blown bear market. Once you have spotted the divergence the oscillator must be below 30 (or at an extreme low relative to asset prices).  This indicates oversold conditions and a market ripe for rally. Once the first two conditions are met wait for the oscillator to break above the previous high or 50, whichever comes first.

 ultimate oscillator preview


Why This Indicator Does Not Suck

This indicator does not suck because it addresses one of the most important issues in short term speculative trading; multiple time frames. Multiple time frame analysis is something very important for new traders to use and understand. It is too easy to make a trade based on good technical analysis only to have it crumble before your eyes because you did not take into account the longer term trends. Another reason it does not suck is because it gives a specific signal. Too many indicators have such a wide variety of signals it is easy to loose the forest for the trees. It also does not suck because it is a directional indicator with a specific signal, great for binary traders.


Why This Indicator Might Suck

This indicator might suck because it does only give off the two signals, buy or sell. As far as I can tell it is not being used for anything else but I suspect it may have other uses. However, without further study this indicator is fairly limited in what it can do. It also might suck because it could lead less experienced, or even experienced, traders into a false sense of security. No indicator is great by itself, they should all be used as part of a set system. Just because this one tries to incorporate multiple time frame analysis does not make it the end-all be-all most ultimate indicator.



My Last Words On The Ultimate Oscillator

I think this indicator is good for binary options but it is not the ultimate indicator the title would lead you to believe. What I think is that it is a great contrarian indicator. This tool and trading signal seeks to pinpoint turning points in rallies and bear markets. Because it is applicable in multiple time frames and uses multiple time frames means that it can be used to predict market reversals ranging from long term secular shifts all the way down to intra-day bounces from support and resistance levels. This probably is not an indicator you will use every day and one I think should be reserved for intermediate traders seeking to capture contrarian movements.



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