Trading the Ultimate Oscillator | Cameron May | 11-11-19 | Getting Started with Technical Analysis
With. So many technical, indicators, to choose from what, is the ultimate, oscillator. Let's, explore it. Good. Morning. And welcome everyone my name is Cameron May and I want to welcome you to this morning's, discussion of, getting started with technical, analysis over, the course the last several months we've been working our way that's. Kind of intriguing titles called the ultimate oscillator, we covered the awesome, oscillator, in recent weeks I'm, looking, forward to get, forth on whether we were going to cover. Specific. Calvin. Also, enjoy the presentation, but be aware that you're invited to join us if you'd, like to starts, at 11 o'clock Eastern, Standard Time on Monday mornings and everybody. Is invited to join me on Twitter, if you'd like to follow me it's at CMA, underscore, TBA, alright. But let's get straight into it first thing that we need to do is pause to consider the risks associated are, investing. In. Order to demonstrate the functionality of platform we are going to be using, real examples, please don't take that as a recommendation or endorsement, of a particular security or strategy, as every. Investing. Decision you make for your self-directed account, is solely, your responsibility transaction. Costs are important, factors and should be considered when evaluating any trade all investing. Involves risks including risk of loss and while, this webcast, discusses, technical, analysis, other, approaches, including fundamental, analysis may assert very different views hey. There Chuck good morning, hi, there Mike mr., bingo, Andrew. Alfred a lot. Of good familiar names there all. Right but let's go set our agenda as. I mentioned we're going to be talking about the, ultimate oscillator. We're going to start with its specific, construction. The, construction that there is a little bit of heavy lifting to be done there but, then we're going to get into the application so, the. Reason I go through the construction is because we have some. Attendees. Each week who, like to know exactly what it is that they're dealing with they, like to get under the hood and understand how the machine, works for. Others they just rather get behind the wheel be, taught how to drive and get, to it alright so whatever. Your preferred approach is we're going to try to cover that for you but we're gonna go through construction, application. Then we're gonna get some repetition. So. Through the accomplishment. Of those three agenda items I just want you to walk away with an understanding of what that ultimate, oscillator, is and how, it might be used to structure a trade. Alright. So let's just get right to it I'm, gonna open up down here, the. Calculation. Of I've. Abbreviated, it to the uo the ultimate, oscillator, okay, now. This this, oscillator. Was initially introduced by Larry Williams in, 1976. And he determined, that, an investor, first needs to look for two. Things in order to begin the the. Calculation. Of this oscillator, number, he, identified, something called buying, pressure, and it's just exactly what you think it is how much, on. An on an intraday. Basis, on a day-by-day, basis. Does. It look like their, buyers. Taking. Prices, to the upside now. He identified. The strength, of that buying pressure is well, how much of a gap was there between the. Low of the day and, the, close of the day I think. You can I think, you can relate to the idea that if, we had the, clothes right down close to the low does it appear at least on an intraday basis, that we have a lot, of buying pressure not. Necessarily, right so. It's that relationship, that. He defines as buying. Pressure however he extended that one extra day what. He does is he looks for the close of it of a day or an, hour or a week depends, on your time frame but we'll be using days for, today's discussion, and. He. Looked at how at the distance from the close to, that day's low or if, it. Was even further down to. The previous, day's close then, that became the buying pressure all. Right but, the buying pressure is just, the close -. The low of, that. Day or that week or whatever or. The. Low of the apartment. Or the prior close just whichever, one is lower so when. You hear the phrase buying, pressure when, discussing the ultimate oscillator that's what we're talking about next. Up he, looked for something called the true range now we actually went through something called the average true range was, just which, is just the total, size of a candle over a period of time we, discussed that in just, maybe two or three weeks ago but, again, according, to Larry Williams this.
Range Is a little bit different very similar. To. The buying pressure but, instead of looking at the closing, value, and. Subtracting. The low he, looked at the high, -. The low now that is the. True range right. High, - the lowest gives us the, true range of the day even. In our even, our average true range calculation. But, he extended, it again back to the previous day so the high - that day's low or, the. Hi -. The previous day's closed whichever, was lower, current. Low or yesterday, is closed, alright so, those are two vital. Elements, in the construction, of this oscillator. Now, we take those and start, to build some additional, math into, them so if you like if you can follow along with this fantastic, if this is not really what you're interested in the inner workings, of a technical indicator we'll get to the application in just a moment but, we take our buying pressure, over. A period of time and. Select. And, divide, that by the the, true, range over that same period, now with, Larry Williams let me open this back up a little bit more. You. Can see we're working with three timeframes seven days 14, days 28, days. Alright. And so. According. To Larry Williams, calculation. We take that, buying pressure let's, say that, the the. Close. To the low on a given, day as $2 and the, previous day it was $3 well we'd start to add those up two, plus three is five do, that over the course of seven days and we get the total buying pressure for. That period seven, days 14, days 28 days right. Then. We. Divide, that by that. True, range over, that same time frame so just add up all the different true, ranges, over. That time frame and then. Divide those totals, do you take the buying pressure over. The time, frame let's say it's seven days so total, buying pressure over those seven days divided. By the, true range over. The same seven days and that produces, a number, that. Number is going to always be between. Zero. And one. Okay. But. We do that for a seven-day period a 14-day, period and, a 28-day, period and then once.
We're Done with that we, plug it into this final equation. We. Are going to wait those. Different, time frames wolf yeah, some of you're going Cameron I'm not falling that's okay if you want to you can go back and revisit, this on the archive if, it's not interesting to you that's okay we'll just get to application. But. We take each of those timeframes and, according to Larry Williams he puts the heaviest weight on what's happened most recently, so. The the. Seven-day, period, has, the cue the greatest weight the. 14-day, period a middle, waiting and then. The 28-day. Period the. Lowest waiting. So. We plug all of this into the formula, we take these. The. Values determined, in step three, and then. Wait those in. Step. Four so, we take the average or, in other words this, this. Third. Step value for. A seven day period multiply, it by four we. Take that third step value for, 14-day, period multiply, it by two and, then. We take that third. Step value for a twenty-eight. Period. But. Don't multiply by anything just leave it right there you. Tally all that up and then, essentially. Divide by seven which is four plus two plus one okay. Then, finally multiply that by 100 there's, your equation did, I say there was going to be some, heavy lifting yes. I actually, had. To put this in my own words, because, you. Can go out and Google this this construction, and. It. It's. It's a little bit in. My view. This. Is about as straightforward as I can possibly make it if. You look at some other google explanations. You'll. See it it's, the same thing just, in more of a mathematical. Terminology. So. That's. It that is how the ultimate oscillator, is calculated, what we wind up with is something, that looks like this let's go to our charts and I, just have Pfizer here, as our example we're, gonna pop up here to the Edit studies as we always do and we're, going to add our oscillator. So it since it's called the ultimate oscillator, let's go to our list of indicators and just, start to type in the word ultimate, and, there it is the ultimate oscillator, let's, add that and I'm, just going to click apply and, then, click OK, and, so. Now we have a chart. A price chart. With our oscillator, added, it as a lower, study, it's below the price chart. Okay. So now let's. Do a little bit of application. So, if you would let's. Have a look over here on the, big screen, I'm. Gonna pop over, we'll. Do some analysis, on this screen. Alright. So let's talk about how a trader, might use this, oscillator, and, specifically. We're going to be using it for entry. Signals, all. Right now, there are a couple of different ending use a. Couple of different ways this oscillator, might be used and these are going to be familiar to you based on other oscillators. That we've discussed. Historically, number. One it can, generate something, called a divergence. Right. So, let's use, PFE. As an example of a divergence, so as we've talked about divergences, before what, we're looking for is a.
Behavior, On the price chart that, departs, from, the behavior, on the. Oscillator. So. Here we see. For. Example here's Pfizer. During. This period hit, a peak right there and then. Right. On down, to a low, hit. A subsequent, peak what do we have right there lower. Highs. Well. At the same time, turn. Your gaze down here, to, the oscillator, and we have a fairly. Prominent peak, follow, this down you can see a peak right through here, Wow. There's. A peak Oh actually. My, apologies. But. Let, me do this one more time. This. Is my mistake the. The, divergence. State identified, is actually the lows there's, a low here there's, a low there what do we have lower, lows, at. The same time on the oscillator though here's. A low there's. A low higher. Lows, so. The oscillator, is pointing toward bullishness. Whereas. Price. Behavior may, be bearishness, as, we call it divergence, and sometimes. An oscillator, like this might be indicating. That there's there's a subtle. Buying. Pressure that's. Not otherwise, in price behavior and if, you notice what happened with Pfizer after. This even, though we had lower, lows which, would typically. Be, interpreted. To be bearish we, had a reversal, of price, now. I'll carry that forward to the present, day let's. Clean up our chart start, from a fresh, slate and, you'll. Notice right, now we have. Higher. Highs, on, the. Chart, but. We have. Lower. Highs on the oscillator so. What, might a technician. Conclude, from that. Maybe. There's, a pending, price, reversal, in the opposite, direction so this, indicator, can be seen as a. Potential. Indication, of a. Shift, in trend, in. A bullish fashion in the case of a bullish. Divergence. Or, a. Bearish. Trend reversal. In the case of what we're seeing now which. Might be a bearish. Divergence all. Right so, that's one potential. Interpretation. Of this, oscillator. Another. Though is going, to look very familiar to you if we compare. This to like a stochastic, indicator. Okay. Let's switch up our security here let, me come over and we're gonna have a look at maybe int. C, okay. What's. Going on with int, C now, let's zoom this back out.
There. We go. So. What do we see with int C we see a. Potential. Second. Indicator, I'm going to use a little bit of history, here, I'm. Gonna I'm gonna draw your attention, now to. Extreme. Lows, you'll. Notice with this oscillator, as with others there, is. There's. A scale, on the, right-hand side and, this, scale as with many other oscillators. Is range, bound between, in this, case zero, and one. Now. With, a stochastic, indicator, you've, been introduced to a range that's actually goes from 0 to 100 but. Move the decimal, this is basically the same and. Some. Traders, who use the ultimate oscillator, will use this oscillator, in a similar way to look for overbought, and oversold. Conditions. So. Let's, start with, over. Sold, so, oversold, as with. Again the stochastic is when, we reach down below, point. Three. All. Right overbought. Would be above. Point seven. But. Let's look at how. Comparatively. Uncommon. These signals are. If. We look at the entire year, I think there were four. INTC. Maybe two examples. Where. We got down below 30. This. Oscillator, dipped right here, when was this this was actually right. Early, in the year all actually it was late December of last year, where. We were transitioning. Right. Around Christmas. We. Hit those lows got, down below, 30, that's, interpreted. To be an oversold. Condition, and may, signal, bullishness. Where it's again not otherwise, obvious, on the chart and if you look at how that lined up pretty good job, of calling, a short-term, or near-term bottom which is its intended purpose, now. Let's roll forward, it looks like we, dipped just, a shade below 30, in May. How. Does that line up if we pull up here. That. Looks like that was right around here, was it an absolutely, perfect if it was taken as an entry was it absolutely perfect not, necessarily. But. Still. Not, too bad and you can see a pretty good reversal, from there well. What our conditions, right now on, INTC. Well. Right now we're, actually right up if you can see this value in green. It's. At 0.72. It's, above 70, there's another way that we would say that so. A technical. Trader might look at the current, position of. Intel. And say, you know what this may be overbought, and it kind of makes sense recognizing. How far it's run up in recent, days and weeks alright, so. Maybe. What we could do. Is how to look at one. More example let's, pop right over here to Caterpillar, and, something. Stood out to me with Caterpillar, and that, is look, at Caterpillar. It's, raced up quite a bit now if. You're just looking at that just, on price we, may already have a suspicion, that this thing is now overextended. However. There are a couple of confirmations. Of Caterpillar. On this. Oscillator. So, if we look at this, let's. Move this down just a little bit so, it's not in the way of our current positioning, but, you can see the. Price is, apparently. Overextended. But, what we're also seeing here higher, highs, on, the, price lower. Highs on the. Oscillator so. There's a divergence there, plus. The current value, of that. Indicators, at, 0.73. So. Over. Bot, and. We. Have a divergence. So. A technical, trader may look at this and and, might use. That as an exit signal for current bullish positions, or maybe even an entry, signal for, a bearish, trade alright, so, once we have entry how, do we get out I'm not going to complicate this, unnecessarily. Really. A trader might just look for previous, areas of resistance. In case of a bullish entry previous. Of areas of support as a bearish entry or, an, opposing. Signal, on the oscillator if we got a bullish entry signal look, for a bearish, behavior on the oscillator or vice-versa. Alright so, class that's, about, as. Quickly as we could do an introduction to the ultimate oscillator, let's, come back. Sort. Of wrap things up, all. Right. But. We had an agenda today. To. Go through the construction of the ultimate oscillator we accomplished, that that one's going to take some.
Maybe, Some repetition for some of you I think, the, best way to learn this is, to look at the math and then, go look at a real example see, if you can calculate the, current value of that oscillator, for yourself but. We got that accomplished, we, also, discussed. The. Virgen says you know actually, let. Me update this it's not trendline, briggs but, overbought, and oversold. Conditions. That. Generate a, potential. Entry. Signal and finally. We've gone through some current examples, so. We've. We've, accomplished what we set out to do three. Agenda items what I want you to walk away with is an understanding, of how, that ultimate oscillate oscillator is constructed, and how it might be applied in. In. A traders portfolio, alright, everybody. Thanks for joining me today one final invitation. If you'd, like to follow me on twitter at CMA. Underscore, TDA if, you're. Intrigued by some. Of these, more. Maybe more complicated, oscillators, more. Advanced. Technical. Approaches. You, may want to check out patent the Wally's presentation. On Friday's. Two o'clock Eastern Standard Time he teaches, a webcast, called advanced charting techniques so, you can go watch, that live or. If, you'd like you just watches archive you can find that in our webcast link hey. Dave, thank. You Oh. Kent. Pointing, out the, sp500. UO is at point six eight two three so getting right up there isn't it Kent we'll keep an eye on that see if that would be interesting, to see if that goes, to overbought. Veronica. Says can you manipulate the seven 1428, can can you, reconfigure. This, indicator. Let me quickly answer, that question if we would go back up here to our edit studies and if. We were to go to our ultimate oscillator, and click on the Edit icon. You'll. See that you can dial. Up and down the, lengths, of these different. BPT. Are moving, averages. Okay. Now. We talked, about in, a recent discussion, why a trader might do that generally. Speaking the, smaller. The number the faster the indicator the larger the numbers used so, if we went from 7/8 at 714 28 to maybe you, know 3 5 10 that, would create a faster, indicator. For, many technicians, one, of the attractions of this indicator, is that. It tends to be slow, I talked, about how infrequently, a signal is generated on, our. Example we only got two signals. Maybe. Pull up the I don't, know the Dow 30 go through 10 or 15 stocks or. Find some stocks in your own portfolios, and see. How frequently, those those, signals are generated. Hey. Laura says. She met me here it met me in Las Vegas oh thank, you very good great welcome, aboard. But. Time for me to set you loose everybody. Thanks. For joining me today go check out Pats webcast, we're gonna take a little bit of a break as we always do and then we'll come back and hear from Pat Mawali when he talks about trading, with ETS at 12:30 Eastern Standard, Time so. I don't mean to pick on Pat today but he's, kind of the man of the hour in, tying. Into this discussion. All. Right everybody. I'm, gonna pick. Another. Indicator. I'm, not revealing it right now but we're gonna be digging into a brand new indicator, next. Monday I'd love to have you join me then and we'll, just continue what we've been doing, expanding. Our knowledge of technical, approaches. To the markets. All. Right Mike says faster. Means more noise potentially, that's true Mike, all. Right but remember that risks. Are real we did use real examples, in today's discussion it's not a recommendation of any. Security. Or any, strategy, discussed. All. Right anybody thanks. For joining me today I'll, look for you next week if you.