Investing & Trading

Universal Oscillator Study

By Samantha Baltodano


TL;DR:

The Universal Oscillator is a tool used in the stock market to make decisions about buying and selling stocks. It isolates the white spectrum of market data and turns it into an oscillator using a momentum-based equation, the Ehlers Super Smoother Filter, and an automatic gain control algorithm. 


The oscillator passing from negative to positive values can be a sign to buy stocks, and the opposite can be a sign to sell stocks.


What Is The Universal Oscillator Study?

If you're interested in the stock market, you might have heard of something called the Universal Oscillator. It's a tool that helps people make decisions about buying and selling stocks, and it was created by a man named John Ehlers who is an expert in signal processing.


But what exactly is the Universal Oscillator, and how does it work? 


Well, let's break it down in simpler terms.


When we talk about the stock market, there's a lot of information to sort through. It's like trying to listen to a lot of different sounds at the same time. This is called "pink noise," which is a scientific term that refers to a type of noise where the power spectral density is stronger at lower frequencies. 


To make sense of all this noise, we need to isolate the white spectrum. The white spectrum is the same at all frequencies and can be transformed into a zero-lag oscillator.


To get the white spectrum, the Universal Oscillator uses something called a momentum based equation. Then, it filters out any unwanted waves using a special filter called the Ehlers Super Smoother Filter. Finally, it uses an automatic gain control algorithm to turn the data into an oscillator.


So what does all of this mean for traders? 


Well, when the Universal Oscillator passes from negative to positive values, it can be a sign to buy stocks. When it passes from positive to negative values, it can be a sign to sell stocks.


Formula and Calculation

The Universal Oscillator is based on several mathematical calculations, including the isolation of the white spectrum of the data, the application of a momentum-based equation, and the use of an automatic gain control algorithm. 


The exact formula for the Universal Oscillator is as follows:


  • Universal Oscillator = 100 x (Price - Ehlers Super Smoother Filter) / (Automatic Gain Control x Ehlers Super Smoother Filter)


where:

  • "Price" refers to the current market price of the security being analyzed
  • "Ehlers Super Smoother Filter" is a type of smoothing filter that is applied to the data to eliminate unwanted wave components
  • "Automatic Gain Control" is a feature that adjusts the gain of the oscillator to maintain a consistent level of responsiveness.


The calculation is as follows:


  1. To calculate the Universal Oscillator, traders first apply the Ehlers Super Smoother Filter to the market data. 
  2. Next, they apply the momentum-based equation to isolate the white spectrum of the data. 
  3. Finally, they apply the automatic gain control algorithm to transform the data into an oscillator. 
  4. The resulting oscillator can then be plotted on a chart and analyzed for trading signals.


It is important to note that the Universal Oscillator is a complex indicator that requires a strong understanding of signal processing and technical analysis. Traders should carefully study the formula and calculation methods before attempting to use the indicator in live trading situations. 


Additionally, it is always recommended to practice using the indicator on a demo account or with paper trading before using real money.


Test The Universal Oscillator Study

Great news! 


You can back test this exact strategy on historical data for any of your favorite symbols using TradingView. 


This strategy has already been built and all you have to do is log in and take it for a spin. You can access this indicator here.


If you’re new to back testing and to TradingView, don’t worry. I created a step-by-step guide you can follow to begin testing the The Universal Oscillator Study.


Summary

  • The Universal Oscillator is a tool used by traders to make decisions about buying and selling stocks.
  • It is based on several mathematical calculations, including the isolation of the white spectrum of the data, the application of a momentum-based equation, and the use of an automatic gain control algorithm.
  • The oscillator uses a special filter called the Ehlers Super Smoother Filter to filter out unwanted waves from the data.
  • Traders can use the oscillator to identify trading signals, with a positive-to-negative shift suggesting selling stocks and a negative-to-positive shift indicating buying stocks.


The Universal Oscillator Study is just one of many [strategies or studies] that Archaide automates. For a full list of strategies and studies available click here.


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