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The Ultimate Oscillator combines short-term, intermediate-term, and long-term price action into one oscillator that gives overbought and oversold readings, buy and sell signals, and confirms price action as well as divergences that warn of future price reversals. The creator of the Ultimate Oscillator, Larry Williams, describes the need for different time periods: * Short-term: The short-term oscillator peaks earlier than price action peaks. * Long-term: The long-term oscillator is late in responding to price action reversals. By combining three separate time periods, short-term (usually 7-period), intermediate-term (usually 14-period), and long-term (usually 28-period), the Ultimate Oscillator tends to peak when price peaks. Note that the intermediate and long-term include the short-term time period; hence, the short-term period is weighted more heavily in the Ultimate Oscillator equation. The Ultimate Oscillator is mainly used to identify divergences and give buy or sell signals based on those divergences.

Developed by Larry Williams and first described in a 1985 article for Technical Analysis of Stocks and Commodities magazine, the "Ultimate" Oscillator combines a stock's price action during three different time frames into one bounded oscillator. Values range from 0 to 100 with 50 as the center line. Oversold territory exists below 30 and overbought territory extends from 70 to 100.

Three time frames are used by the Ultimate Oscillator and can be specified by the user. Typically values of 7-periods, 14-periods and 28-periods are used. Note that these time periods all overlap, i.e. the 28-period time frame includes both the 14-period time frame and the 7-period time frame. This means that the action of the shortest time frame is included in the calculation three times and has a magnified impact on the results

A technical indicator invented by Larry Williams that uses the weighted average of three different time periods to reduce the volatility and false transaction signals that are associated with many other indicators that mainly rely on a single time period.

Investopedia explains Ultimate Oscillator
This is a range-bound indicator, which means the value fluctuates between 0 and 100. Similar to the RSI, levels below 30 are deemed to be oversold, and levels above 70 are deemed to be overbought. Transaction signals are derived by finding situations where the price is going in opposite directions than the indicator. Once this divergence has been identified the trader will wait to confirm the transaction by using other technical indicators

Source(s):

investopedia.com

The Ultimate Oscillator is a technical analysis oscillator developed by Larry Williams based on a notion of buying or selling "pressure" represented by where a day's closing price falls within the day's true range.

Williams had specific criteria for a buy or sell signal. A buy signal occurs when,

* Bullish divergence between price and the oscillator is observed, meaning prices make new lows but the oscillator doesn't
* During the divergence the oscillator has fallen below 30.
* The oscillator then rises above its high during the divergence, ie. the high in between the two lows. The buy trigger is the rise through that high.

The position is closed when the oscillator rises above 70 (considered overbought), or a rise above 50 but then a fallback through 45.

A sell signal is generated conversely on a bearish divergence above level 70, to be subsequently closed out below 30 (as oversold).

Source(s):

http://en.wikipedia.org

Invented by Larry Williams the Ultimate Oscillator was his attempt to rectify some of the problems with most of the oscillator indicators. Overview Williams realized that the value of oscillators can vary greatly depending on the number of time periods used during the calculation. Therefore instead of using just one input the Ultimate Oscillator uses weighted sums of three oscillators which represent short, intermediate, and long term market cycles (7, 14, & 28-period). It is plotted as a single line and ranges on a scale from 0 to 100. By utilizing three time periods Williams believes that is able to obtain more accurate signals, but the use of the Ultimate Oscillator is still based on the simple idea of divergence. A Buy signal is occurs when the Oscillator is moving up while the price is moving down while a sell signal happens when the conditions are reversed.