Trading the Ultimate Oscillator
Trading using Ultimate Oscillator
The Ultimate Oscillator can be used to generate buy and sell signals as follows:
1. Extreme Values (overbought/oversold)
2. Ultimate Oscillator Divergences
Extreme Values: The Ultimate Oscillator is plotted within a range of 0 and 100 and signals overbought conditions above 70, meaning the underlying market is trading near its upper trading range; and oversold conditions below 20, meaning the underlying market is trading near its lower trading range.
• Buy when Ultimate Oscillator moves above the 20 line.
• Sell when Ultimate Oscillator moves below 70 line.
On Aug. 19, 2017, the Ultimate Oscillator gave a buy signal for Exxon Mobil Corp. (XOM) as its moved above 20 (see “Ultimate energy long,” above). Exxon also formed a doji candlestick suggesting a reversal was nearing. Traders could have gone long with a stop-loss below the previous day’s low on closing basis under $76 and ridden the move until the Ultimate Oscillator became overbought in mid-September. XOM continued to consolidate until Aug. 31, testing the patience of the trade, and then came the big bang rally taking XOM sharply higher over the first two weeks of September.
The Ultimate Oscillator is just as strong in finding profitable shorts. On March 3, 2017, the Ultimate Oscillator put out a sell signal in Cisco System (CSCO) as its moved back below 70. Like with Exxon, a doji candlestick was present suggesting a reversal could be near after a strong run-up in the stock. Traders could have gone short on March 3 with a stop-loss at the previous day’s high at $34.53 and ridden the move until the Ultimate Oscillator became oversold. Cisco corrected over the next 10 days by 5% and more than 10%, after challenging our stop, into May (see “Ultimate short,” below).