Ultimate Oscillator = 100 x [(4 x Cycle1) + (2 x Cycle2) + Cycle3] / (4 + 2 + 1)
Calculation
If:
· Cycle 1=7
· Cycle 2=14
· Cycle 3=28
Then:
Ultimate Oscillator = 100 x [(4 x Average7) + (2 x Average14) + Average28] / (4 + 2 + 1)
Overbought and oversold signals:
In an uptrend:
Buy when the indicator rise above oversold line.
In a downtrend:
Sell when the indicator falls below the overbought line.
Divergence signals:
Buy signal normally at the end of a downtrend: Wait for the bullish divergence in the market. This means, the price should make a lower low, but the indicator should display a higher low.
Sell signal normally at the end of an uptrend: Wait for the bearish divergence. This means, the price should make a higher high, but the indicator should display a lower high.