Larry Williams, the designer of the Ultimate Oscillator, wanted to address
the problems experienced with most oscillators when used over different lengths
Ultimate oscillator signals are the following: divergence and a breakout in the Oscillator's trend, as well as overbought and oversold levels.
The value of other oscillators can vary greatly depending on the number of time periods used during the calculation. So, the Ultimate Oscillator, uses weighted sums of three oscillators which represent short, intermediate, and long term market cycles (7, 14, & 28-period), and it is plotted as a single line on a vertical scale of 0 to 100.
The three components are based on Williams's definitions of buying and selling "pressure."
A trade should be initiated following a divergence and a breakout in the Ultimate Oscillator's trend.
A Buy signal is generated when:
A positive or bullish divergence occurs between the Ultimate oscillator and the price.
The Ultimate falls below 30 and then rises above the previous high established during the divergence (the actual buy signal).
A Sell Signal is offered when:
A negative or bearish divergence occurs between the Ultimate and the price.
The Ultimate rises above 70 and then falls below the previous low established during the divergence (the actual sell signal).
Closing existing positions:
Close long positions when the Ultimate exceeds 70.
Close short positions when the Ultimate goes below 30.
As with most indicators, it is good if these signals are confirmed by other indicators before being acted upon.