In a variable displacement type hydraulic pump/motor assembly including at least one internally movable component, such as a yoke, a swashplate, and the means for moving the swashplate, the improvement includes imparting on this component absolute location indicia markings and the addition of an optical/electronic sensor unit capable of reading such indicia markings fixedly located on a housing of the pump/motor assembly and including an optical read head extending into the housing interior and located at a spaced distance from the indicia markings for reading same, relative to a reference location, and producing a signal indicative of the absolute position of the movable component. The signal can then, in turn, be used for controlling the displacement of the pump/motor assembly. A method for determining the absolute component position is also set forth.