Ultimate Oscillator (ULT, UOS)
The Ultimate Oscillator combines a stock's price action during 3 different time frames into one bounded oscillator. These 3-time frames are short, intermediate, and long-term market cycles - or 7, 14 and 28-period. Larry Williams created this Oscillator.
It is important to remember that all these time periods overlap: the 28-period time frame comprises the 14-period time frame as well as the 7-period time period. It means that the action of the shortest time frame is comprised in the calculation 3 times and has an enlarged influence on the results. It is depicted as a single line put on a vertical range valued between 0 and 100 (where the oversold territory is below 30 and the overbought territory is over 70).
When there is discrepancy between price and the Ultimate Oscillator, trading should take place. If the Oscillator falls below 30, then a bullish signal is generated during this discrepancy. As soon as the price reaches a new bottom - and not supported by a new bottom of the Ultimate Oscillator - then the Oscillator moves over its peak during the discrepancy.
Once the value of the Ultimate Oscillator rises above 70 (or above 50) and then falls below 45, the following uptrend can be finished. That is what Larry Williams says. A bearish signal is generated if the price reaches a new peak and is not supported by a new peak of the Ultimate Oscillator (in case if the Oscillator rises over 50 during this discrepancy and the Oscillator then falls to a new low during the discrepancy).
Once the value of the Ultimate Oscillator rises above 65 or falls below 30, the following downtrend can be finished. That is why the Ultimate Oscillator indicator measures the sums of the True Ranges of the number of bars specified by the inputs Avg1Len, Avg2Len, and Avg3Len. These sums are divided into the sums of the distance from the close to the low. This value is weighted for the 3 lengths, which are included into the chart.
Many analysts believe discrepancies between the Ultimate Oscillator as well as a breakout in the trend of the indicator are important signals. For instance, a bearish discrepancy happens when Forex market prices rise to a new peak but the indicator does not follow. Vice versa, a bullish discrepancy happens if Forex market prices shift down to a new bottom but the indicator does not follow.