Williams %R is an overbought and oversold technical indicator that may offer potential buy and sell signals. Williams %R is very similar to the Stochastic Fast indicator (see: Stochastics) as the chart below will illustrate:
Like Stochastics, the Williams %R indicator attempts to give buy and sell signals, as is demonstrated in the chart below of the Nasdaq 100 exchange-traded fund QQQQ:
Williams %R Potential Buy Signal
When the Williams %R indicator is below the oversold line (20) and it rises to cross over the 20 line, then a trader might buy.
Williams %R Potential Sell Signal
A trader might sell when the Williams %R indicator is above the overbought line (80) and then falls below the 80 line.
Furthermore, the Williams %R indicator may help identify strong trends; this is discussed on the next page.
Williams %R and Trends
Since the Williams % R indicator is similar to stochastics, it might be useful during sideways, non-trending markets. However, during trends, the Williams % R probably does not fare as well.
Nevertheless, the Williams % R indicator can give tell tale signs of strong trends. The following chart of the Nasdaq 100 ETF (QQQQ) illustrates Williams % R’s ability to detect such trends:
As the chart of the QQQQ illustrate, when the Williams % R indicator stays in the oversold area (below 20) and any bullish rally barely registers with the Williams %R (i.e. fails to go above 80), then the downtrend appears to be strong and a trader might avoid any potential buy signals.
Similarly, when the Williams %R indicator stays in the overbought area (above 80) and any attempt at a downturn fails to send the indicator into oversold territory (i.e. fails to go below 20), then the uptrend appears to be strong and a trader might avoid going short.
The Stochastic indicator (see: Stochastics) would be a logical next step for investigation.
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