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How to trade divergences with the Ultimate Oscillator


Ultimate Oscillator on IQ OptionThere are many indicators available for traders to simplify the trading process. They can be divided into groups and today I will write about one that belongs to momentum oscillators. It was invented in 1976 by Larry Williams and is known as the Ultimate Oscillator.

Ultimate Oscillator

Many momentum oscillators are trapped in a single timeframe and so they accelerate sharply at the start of a strong rally and then form a bearish divergence as the rally continues. In opposition, the Ultimate Oscillator (UO) incorporates longer timeframes into its formula and the signals based on both, bullish and bearish divergences can be identified.

Adding the Ultimate Oscillator to the IQ Option chart

Log in to your trading account. Choose the chart type for a favoured asset. Then, click on the Indicators icon. You will find the Indicators tab there. Click on Momentum and select the Ultimate Oscillator from the list that has unfolded on the right side.

How to insert Ultimate Oscillator on IQ Option platform
How to insert the Ultimate Oscillator on the IQ Option platform

You can also type the name of the indicator needed in the search box.

The Ultimate Oscillator will be visible below the price chart in the separate window.

The Ultimate Oscillator on EURUSD daily chart
The Ultimate Oscillator on the EURUSD daily chart

The UO takes three different timeframes in the calculations. It reduces false divergences. Signals to buy are based on a bullish divergence and to sell on a bearish divergence.

Trading with the Ultimate Oscillator

Opening long positions on IQ Option

To open a long position with the UO three things must happen. The first is a bullish divergence. It occurs when the oscillator creates a higher low but the price forms a lower low. The second thing is that the low of the Ultimate Oscillator should be placed below the line of value 30. And the third step is to wait for the oscillator to rise beyond the high of the divergence.

Buy when price break the local resistance after bullish divergence
Buy when the price breaks the local resistance after a bullish divergence

Opening short positions with the Ultimate Oscillator

There should be a bearish divergence observed between the oscillator and the price. The UO should form a lower high while the price creates a higher high. The oscillator high should be noted above the line of the value of 70. And the last thing is that Ultimate Oscillator should fall beneath the low of the bearish divergence. This will confirm an upcoming reversal.

Sell when price breaks the local support after a bearish divergence
Sell when the price breaks the local support after a bearish divergence

Getting more signals

You can successfully use the Ultimate Oscillator on different timeframes. However, it might be a good idea to play with its settings. Some securities and stocks may not show oversold and overbought readings when the UO has default settings. By decreasing the timeframe to  4, 8, 16 you will increase the sensitivity of the oscillator and generate more trading signals at the same time. For securities that are characterised by high volatility, you should do the opposite that is to diminish sensitivity by lengthening the timeframes.

hanging the default settings to 4,8,16
You can get more signals by changing the default settings to 4,8,16

Final words

It is possible to use the Ultimate Oscillator on intraday, daily, weekly or monthly charts. This indicator combines three timeframes and produces signals based on bearish and bullish divergences.

Change the default parameters depending on what kind of asset you are trading.

You can also get a confirmation of trading signals by using additionally chart patterns, extra indicators or other technical analysis tools available on the IQ Option platform.

Log in to your demo account to get to know the Ultimate Oscillator well. Here, you will not lose your money. After some practice shift to the live account to generate profits.

Best of luck!

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