Williams % R is an effective oscillator developed in the year 1973 by Lary Williams. It confirms the trend and gives us a warning of the upcoming trend reversal. It measures the bulls and bears capacity to close price each day near the edge of recent range. Moreover, the signals derived from the stochastic indicator are even applicable to Williams’s %R.
Williams % R provides three types of trading signal which are as follows-
- It tells us overbought and oversold zone
- It identifies bullish and bearish divergence
- It defines failure swings
In this article, we will discuss a special trading strategies using Williams % R.
Trading strategy using Moving average and Williams % R
This is very simple but an extremely effective strategy using which we can get good buy or sell signal especially in case of trending and volatile stocks. Here we are taking the combination of Williams % R and 100-period moving average to develop trading signals.
When Williams % R is above the 50 line and the price closes above 100 period moving average from below, a buy signal is generated. We will remain in the trade unless the price closes below the 100 DMA line or Williams % R gives a closing below mid 50 line.
In the first scenario, we saw that as the price closed above the 100 DMA and as long the Williams % R is above the 50 line, we could be in the trade. However, when the Williams % R closed below the 50 line, we could have exited the trade. This trade could give us very good profit.
When the Williams % R is below the 50 line or price closes below the 100 DMA, a short signal is generated. We will stay in the trade until the price closes above 100 DMA and the Williams % R gives a closing above 50 line.
In this scenario as we can see in the chart, that when the price closes below the 100 DMA and the Williams % R was also below the 50 line, we could have taken a short trade at 480. However, when the William % R crossed the 50 line, we took the exit from the trade at Rs 420, thus making Rs 60 in the process.
Unlike other technical oscillators, Williams %R should also be used in conjunction with various technical tools like volume, chart patterns and breakouts can be used to get confirmed signals produced by Williams %R.
Mr Ankit Jaiswal – Knowledge Associate at Elearnmarkets.com. A commerce graduate from St. Xavier’s college, Kolkata . He strongly believes in the following saying by Warren Buffett-“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”
You can learn various technical analysis tools and indicators in Essential Technical Analysis.