Developed by Larry Williams, the Ultimate Oscillator uses weighted sums of three oscillators, each of which has a different time period, in an attempt to 'smooth out' the fluctuations that generally make oscillators hard to interpret. The ultimate oscillator tries to put you in a trade on the basis of a divergence (and breakout) in the oscillator's trend. Typically, traders go long when there is a bullish divergence (the stock's price makes a lower low but the Oscillator does not). During a bullish divergence, the ultimate Oscillator's value will usually fall below 30, then rises back above the highest point reached during the bullish divergence so signally a 'buy'. The position would normally be closed when either "sell short" conditions are met, or the ultimate oscillator first rises above 50 and then falls below 45, or the oscillator rises above 70.

The "Sell short" condition is when a bearish divergence occurs (the stock's price makes a higher high but the oscillator doesn't). During this bearish divergence, the ultimate oscillator will usually rise above 50 then will fall below the lowest point reached during the bearish divergence. These short positions are closed when either the conditions are met to buy long as explained above, or the ultimate oscillator rises above 65, or the oscillator falls below 30. Day trading with this indicator is difficult as it is normally used in longer term trading activities, although the principle of scaling suggests it might have some utility.

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