[Intermediate Course] Steemit Crypto Academy - Season 5 Week 8 | Trading with Ultimate oscillator
Hello everyone. A very warm welcome in 8th and last week of season 5. This week, professor @utsavsaxena11 has taught us about the "Ultimate Oscillator". This is my homework post.
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Q.1) What do you understand by ultimate oscillator indicator. How to calculate ultimate oscillator value for a particular candle or time frame. Give real example using chart pattern, show complete calculation with accurate result.
The crypto market is highly volatile. The price of the coin keep moving toward up or down time to time. The behavior of the traders effect the market prices and the bullish or the bearish trends occur. The traders no doubt, use a lot of tools and the strategies to predict the market future. There are a number of the tools which are use for the technical and the fundamental analysis of the assets. Today's we will study the Ultimate Oscillator.
The Ultimate Oscillator is an indicator which was introduced in 1976 by the Larry William. This is a technical indicator which solve the problem of the oscillators which the traders had while using it in multiple time frames at the same time. The Ultimate Oscillator is used to analyze and measure the momentum in the crypto market and has less volatility. The short and long term price actions are used for measurement of the momentum.
This is being used worldwide to measure the momentum of the market at the various time frames and that's why, it produce the less signals. The short and long term time frames are being used in the Ultimate Oscillator because of which, this indicator produce less signals as compare to those indicators which use the single time frame to analyze the market.
This indicator is use to identify the bearish and bullish divergence. The buying and selling signals are produced in the bullish and bearish divergence. When the bullish divergence occur, the selling signals are produce, the traders should exit from the market by buying the coins to earn the high profit. Similarly, the bearish divergence occurrence produce the buy signals. The traders should enter into the market when the bearish divergence occur.
The number of signals produced by the Ultimate Oscillator is less but accuracy of these signals is high. This indicator has reading from 0-100. This indicator is use to identify whether the market is in overbought region or it is oversold zone. When the reading is above the 70, it mean that buying pressure is high and market is in overbought region. When the reading is below the 30, it mean that the selling pressure is high and market is in oversold region.
Below is the formula which we use for the calculation of the Ultimate oscillator
- Ultimate Oscillator =[{(A7 * 4)+(A14 * 2)+(A28)}/7] * 100
In the above formula,
- A7 is the average computed which has been calculated by computing the value over the 7 time period.
- Average 7 = Sum of buying pressure for last 7 days / Sum of True Range for the last 7 days.
- A14 is the average computed which has been calculated by computing the value over the 14 time period.
- Average 14 = Sum of buying pressure for last 14 days / Sum of True Range for the last 14 days.
- A28 is the average computed which has been calculated by computing the value over the 28 time period.
- Average 28 = Sum of buying pressure for last 28 days / Sum of True Range for the last 28 days.
Here the Buying pressure and the true range are calculated by using the following formulas;
- Bullish Pressure is calculated by substracting the previous close or current low from the current close
- Buying Pressure = Current Close – Min(Current Low or Previous Close)
The true range is calculated by substracting the Minimum of current low or previous close from the maximum current high or previous close.
- True Range = Max(Current High or Previous Close) – Min(Current Low or Previous Close)
Illustration
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| periods | buying pressure | True range |
|---|---|---|
| 1 | 0.003 | 0.004 |
| 2 | 0.001 | 0.008 |
| 3 | 0.004 | 0.010 |
| 4 | 0.001 | 0.008 |
| 5 | 0.008 | 0.013 |
| 6 | 0.007 | 0.008 |
| 7 | 0.005 | 0.009 |
| 8 | 0.0014 | 0.016 |
| 9 | 0002 | 0.012 |
| 10 | 0.005 | 0.008 |
| 11 | 0.011 | 0011 |
| 12 | 0.003 | 0.010 |
| 13 | 0.010 | 0.015 |
| 14 | 0.018 | 0.018 |
| 15 | 0.006 | 0.012 |
| 16 | 0.009 | 0.016 |
| 17 | 0.02 | 0.025 |
| 18 | 0.044 | 0.015 |
| 19 | 0.015 | 0.045 |
| 20 | 0.025 | 0.025 |
| 21 | 0.002 | 0.040 |
| 22 | 0.005 | 0.028 |
| 23 | 0.008 | 0.01 |
| 24 | 0.07 | 0.015 |
| 25 | 0.006 | 0.022 |
| 26 | 0.030 | 0.032 |
| 27 | 0.6 | 0.044 |
| 28 | 0.050 | 0.05 |
Now
- A7 = 0.029/ 0.06 = 0.4
- A14 = 0.092 / 0.26 = 0.3
- A28 = 0.98 / 0.66 = 1.4
Put the values in the UO formula.
- UO=(((A7 * 4)+(A14 * 2)+(A28))/7)*100
- UO = (((0.4*4) + (0.3 * 2) + (1.4))/7)100
- UO = (1.6+0.6+1.4)/7 *100
- UO =3.6 / 7 * 100
- UO = 0.51*100
- UO = 51
The UO which we calculated is 51 which is close to 52 so my calculation is correct.
Q.2) How to identify trends in the market using ultimate oscillator. What is the difference between ultimate oscillator and slow stochastic oscillator.
The Ultimate oscillator is use to identify the market trend. The existed market pressure is use to identify whether the current market trend is bearish or bullish. This indicator then helps the traders to decide what should do next in the market. The traders use this indicator to identify the market trend and then take the trading decisions. The sell or buy the coins after identification of the market trend.
Bullish Trend Identification
There are 0-100 reading on the ultimate oscillator. When the indicator show reading below the 30 points, this indicate that the currently market is in oversold zone. The price is low and a trend reversal is expected. The traders should enter into the market and should buy the coins. The demand will raise and thus the price of the coin will move in upward direction. The bullish trend will occur in market.
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The price will move from bottom to top. The demand will increase and supply will decrease. The higher highs will form where each high will be higher than previous high and price will cross the 70 level of the indicator and will continue to move upward. The market is then said to be in bullish trend
Bearish Trend Identification
When the When the indicator show reading above 70 points, this indicate that the currently market is in overbought zone. The price is high and a trend reversal is expected. The traders should exit from the market and should sell their coins. The demand will decrease and supply will increase. Thus the price of the coin will move in downward direction. The bearish trend will occur then in market.
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The price will move from top to bottom. The demand will decrease and supply will increase. The lower low will be formed where each low will be lower than previous low and price will cross the 30 level the indicator while moving downward. The price will will continue to move downward. The market at that time is said to be in bearish trend
Key Points
- The oscillator indicator is use to identify the market trend using the three lines of the indicator. These three lines show the three different time frames
- When reading is below the horizontal line, then he reading is below 30 points. This indicate market is in oversold region.
- When reading is above the horizontal line, then he reading is above 70 points. This indicate market is in overbought region.
- The volatility is low, thus this indicator give us less in number but more accurate signals.
Q.3 What is Different between ultimate oscillator and slow stochastic oscillator.
The Ultimate Oscillator is used to analyze and measure the momentum in the crypto market and has less volatility. The short and long term price actions are used for measurement of the momentum. This is use to measure the momentum of the market at the various time frames and that's why, it produce the less signals. The short and long term time frames are being used in the Ultimate Oscillator because of which, this indicator produce less signals as compare to those indicators which use the single time frame to analyze the market.
The oscillator indicator is use to identify the market trend using the three lines of the indicator. These three lines show the three different time frames. When reading is below the horizontal line, then he reading is below 30 points. This indicate market is in oversold region. When reading is above the horizontal line, then he reading is above 70 points. This indicate market is in overbought region.
The Slow Stochastic is an indicator which is use to measure the current closing price of an asset. Here only two time frames are being used which are 3 and 14. The recent closing price of the coin is determined using the high and low of coin for a certain time period which is 14 by default. The multiple signals are being generated in the slow stochastic oscillator. Multiple time, the signals produced by the stochastic oscillator are wrong. This indicator is use to determine the market trend reversal and also measure the current market trend over a certain time period.
This indicator also use to identify whether the market is in overbought zone or oversold zone. But here the reading differ. When the reading of the indicator is above 80, the market is considered in overbought zone. When the indicator's reading is find below 20, the market is said to be in oversold zone. The slow oscillator indicator use less time frame and thus produce mostly inaccurate signals.
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| Ultimate oscillator | slow-stochastic |
|---|---|
| This indicator is use to measure the momentum of the market using multiple time frame. | This is use to measure current closing price using the high and low of the asset for certain period of time. |
| Use multiple time frames(7,13,21) and produce more accurate and authentic signals. | Use only two time frames(14 & 3) Thus mostly produce false signals. |
| Market is said to be in overbought zone when the indicator is above the 70. | The market is said to be in overbought region when indicator's reading is above the 80. |
| Market is said to be in overSold zone when the indicator is below 30 points | Market is said to be in oversold zone when the indicator is below the 30 points |
| It has one oscillating lines. | It has two lines |
| It is easy and simple to understand. | It is complicated as compare to UP |
| The traders prefer to use the UO for analysis mostly in crypto world | The traders do not reply on it because it usually produce wrong result |
Q3.) How to identify divergence in the market using ultimate oscillator, if we are unable to identify divergence easily than which indicator will help us to identify divergence in the market.
When the price of the asset move in a certain direction but the indicator move in opposite direction, then the divergence occur. The indicator and price move in opposite direction. There are two type of the divergence; Bearish divergence and bullish divergence. The divergence give us signals to predict the market upcoming trend. The Ultimate oscillator is use to measure the divergence in the market.
Bullish Divergence
When the price of an asset form the lower low but the ultimate Oscillator form the higher high at the same time, the bullish divergence occur. The Bullish indicator produce the signals that the bearish trend is almost finish. Now the uptrend is going to start. The indicator show the earlier signals and thus by utilizing those signals, the traders can take the trading decision before the trend take place in market. The Bullish divergence on the ultimate oscillator show that the price is now going to start moving upward. The uptrend will occur. SO the traders should enter into the market.
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Bearish Divergence
When the price of an asset form the higher high but the ultimate Oscillator form the lower low at the same time, the bearish divergence occur. The Bearish indicator produce the signals that the bullish trend is almost finish. Now the downtrend is going to start.
The indicator show the earlier signals and thus by utilizing those signals, the traders can take the trading decision before the trend take place in market. The Bearish divergence on the ultimate oscillator show that the price is now going to start moving downward. The uptrend is end and now downtrend will occur. SO the traders should exit from the market.
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Beside the Ultimate stochastic indicator, we can use multiple other momentum based indicator to find out the divergence like William %R, RSI, Stochastic oscillator, Stochastic RSI.
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Q.4.) what is the 3 step- approach method through which one can take entry and exit from the market.
The best time to enter into the market when price is down and market is expected to move in upward direction. The traders should buy the coins when there is the bullish divergence. The bullish divergence occur when there is downtrend. The price is showing the lower low moves. But a point come, when the indicator start forming the higher high but the price still forming the lower lows. The opposite movement of the price and the indicator indicate that the trend is going to reverse.
The bullish divergence on the ultimate oscillator show that the bullish trend is going to start in the market. SO the traders should enter into the market. This is best buying spot.
The best time to exit into the market when price is high and market is expected to move in downward direction. The traders should sell the coins when there is the bearish divergence. The bearish divergence occur when there is uptrend. The price is showing the higher high moves
But a point come, when the indicator start forming the lower but the price still forming the higher high. The opposite movement of the price and the indicator indicate that the trend is going to reverse. The bearish divergence on the ultimate oscillator show that the bearish trend is going to start in the market. SO the traders should exit from the market. This is best selling spot.
The below is the 3-step approach method to take the entry into the market or exit from the market.
Buy Scenario
First of all, the traders should confirm that there is the bullish divergence. This is occur when the price show the downtrend signals but the indicator produce the uptrend signals.
The first lower low which form on the price start in downtrend should should be below the horizontal line and the 30 level of the indicator. This indicate that price is in oversold region. The reversal is expected. The next uptrend is expected in the market.
When the bullish divergence occur, then we should first confirm the buy signals then take entry into the market. For confirmation of signals, the indicator reading should move in upward direction. The indicator value should above the high of divergence.
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Sell Scenario
First of all, the traders should confirm that there is the bearish divergence. This is occur when the price show the uptrend signals but the indicator produce the downtrend signals.
The first higher high which form on the price start in uptrend should should be above the horizontal line and the 80 level of the indicator. This indicate that price is in overbought zone and produce the trend reversal signals. The reversal is expected. The next uptrend is expected in the market.
When the bearish divergence occur, then we should first confirm the sell signals then take entry into the market. For confirmation of signals, the indicator reading should move in downward direction. The indicator value should below the low of divergence.
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Q. 5). What is your opinion about ultimate oscillator indicator. Which time frame will you prefer how to use ultimate oscillator and why?
The Ultimate indicator is very useful indicator which use to measure the momentum of the market using the different time frames. The multiple time frames are used here and thus the less signals are produced. The volatility is high and the indicator produce very authentic signals. This indicator is highly reliable and useful because of its effectiveness and smoothness. The traders can trade in successful way if they use this indicator properly.
Here the ratio of the false signals is quite low because here, three value of different timeframes are being used and then signals are produced. But because of smoothing characteristic, it produce the late signals. So to overcome this week point we should use this indicator by combining with some other momentum based indicator for best result.
There are a lot of momentum based indicator in the market. So we can use those along with the ultimate oscillator indicator to get the more accurate signals. The Stochastic oscillator is the momentum based indicator which will go best along with the ultimate oscillator.
We can use it to overcome the week point of the ultimate indicator which was that it produce the late signals. The stochastic oscillator generate very fast results. We can use those signals and then later can confirm those signals from the ultimate oscillator
This indicator work effectively and efficiently in different time frames. This indicator was produced to use accurately by all the traders for all the time frames and trading strategies. The long term traders and short term traders can get equally benefit from this indicator. It is best and suitable for all time frames. I am intraday trader and i mostly perform trading using the 2 hour frame time. So i will use this indicator in 2 hours.
I will produce the less signals which will be more accurate. The traders can use it for 15 minute time frames, 1 hour, 2 hour, 2 hour, days, week, at any time frame according to their trading plan and strategies. This indicator is best and produce more accurate results for all sort of traders.
Conclusion
This is a technical indicator which solve the problem of the oscillators which the traders had while using it in multiple time frames at the same time. The Ultimate Oscillator is used to analyze and measure the momentum in the crypto market. The short and long term price actions are used for measurement of the momentum. The short and long term time frames are being used in the Ultimate Oscillator because of which, this indicator produce less signals as compare to those indicators which use the single time frame to analyze the market.
This indicator is use to identify the bearish and bullish divergence. The buying and selling signals are produced in the bullish and bearish divergence. When the bullish divergence occur, the selling signals are produce. Similarly, the bearish divergence occurrence produce the buy signals. The number of signals produced by the Ultimate Oscillator is less but accuracy of these signals is high. This indicator has reading from 0-100. This indicator is use to identify whether the market is in overbought region or it is oversold zone.