Technical Analysis:Using the Williams’ %R Indicator in Your Trading

There are hundreds of technical patterns to be aware of.

In fact, if you pick up Steven B. Achelis’ Technical Analysis from A to Z, you can see most of them in 400 pages. But after 20 years of trading, I can personally tell you the most powerful momentum indicators a trader can use include Bollinger Bands (2,20) moving average convergence divergence (MACD), Relative Strength (RSI), an Williams’ %R (W%R).

Of those, my personal favorite is Williams’ %R.

That’s because oftentimes, it turns higher or lower before the stock turns higher or lower. When W%R jumps to or above its 20-line, we have an overbought indication. When W%R drops to or below its 80-line, the stock is considered oversold.

Look at this two-year chart of Apple (AAPL) for example.

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Notice what happens up to 80% of the time when W%R flies to close to its 20-line. Not long after, the stock breaks down and pivot lower. Now, notice what happens when W%R drops to its 80-line. Again, about 80% of the time, we begin to see a pivot in the other direction.

Confirm with Other Key Indicators

Of course, it’s never wise to just use a single technical indicator. Always be sure to confirm. For example, until I update my system again, I’ll confirm with the following:

  • When RSI moves to or above the 80-line, we have an overbought condition. When RSI moves to or below the 20-line, we have an oversold condition.  It confirmed what Williams was telling us.
  • With MACD we’re simply looking for unsustainable, big moves.
  • With Bollinger Bands (2,20), when a stock – or index – touches or penetrates the lower band, the situation can be considered oversold.  When a stock touches or penetrates the upper band, it can be considered overbought. 

At the moment, these are some of my personal favorites.

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