Technical Studies: Ultimate Oscillator

Ultimate Oscillator is a lower indicator developed by Larry Williams that plots overbought and oversold levels for a security based on a combination of its price movements during three pre-defined time periods. The customizable default time periods are 7, 14 and 28 periods (minutes/hours/days/weeks/months, based on the selected frequency).

The shortest time period is factored into the calculation of the Ultimate Oscillator 3 times. The second shortest time period is factored into the calculation 2 times and the longest time frame is factored in only once.

The Ultimate Oscillator is plotted on a 0 to -100 scale. A reading within the 0 to 30 range suggests the security is overbought (price decrease may be due). A reading within the 70 to 100 range suggests an oversold condition (price increase may be due). Some analysts pay little attention to the overbought/oversold indicators and pay more attention to confirmation signals involving bullish and bearish divergence versus the security's price.