A set of displaced squeezed number states is proposed as trial wave functions in variational calculations of ro-vibrational energy levels of diatomic molecules. By employing the ladder operator formalism, we construct such states as well as an algebraic Hamiltonian expressed in terms of normal-ordered boson operators. We also show that this algebraic Hamiltonian can be expanded in terms of pseudoladder operators a˜(), and a˜†(,) obtained via a generalized Bogoliubov transformation. In this case, the Hamiltonian matrix is built using the usual Fock basis set and the coherence and squeezing parameters  and  are optimized variationally. The convergence of the variational calculations is largely improved when using the displaced squeezed number states instead of the usual Fock ones. A class of generalized displaced squeezed number states is also considered, and some numerical applications are given.