Archive for the 'Tools' Category

Williams %R Indicator – Another Excellent Technical Trading Tool – by Mike Estrey

Many stockmarket technical analysts and chart watchers use the well known Relative Strength Index (RSI) as a reliable overbought/oversold indicator, but there are various other highly useful tools out there, and an excellent and simple one is the Williams Percent Range technical indicator.

This was developed by Larry Williams, an expert in trading and systems analysis, and is a slightly different way of evaluating overbought and oversold market conditions. As with the RSI the %R always falls between a value of 100 and 0 (it is actually calculated as a negative figure in some software systems), and two horizontal lines can normally be defaulted to represent the -20% and -80% overbought and oversold levels. RSI watchers often use 30 and 70 as the equivalent levels, but these are not set in stone for either indicator.

The Williams %R formula

The Williams %R indicator uses highs and lows within its calculation, so this is a bonus, and it is inverted by multiplying it by -100 to give the ‘low’ and ‘high’ figures.

The formula which is preset on most software systems is:

((Highest high value (High, Number of periods chosen) – Close)/(Highest high value (High, number of periods chosen) – Lowest low value (Low, Number of periods chosen))) * -100

Williams’ original analysis focused on 10 trading days as the number of periods chosen to determine a market’s trading range, and then the calculation was made by reference to where the current day’s closing price fell within that range.

There are some similarities with another well known indicator, the Stochastic, (which can be used both as a trend indicator or an overbought/oversold measure), but the Williams %R does not have any smoothing (or fast and slow lines if you like)

A value of 0% on the Williams %R shows that the closing price is the same as the period high, but often the indicator will remain very close to 0% for days on end in a strong bull move where the closing prices are near to period highs. A value of -100% shows that the closing price is identical to the period low, and the opposite scenario is common here.

What this indicator really does that is very good is to show the difference between the period high and today’s closing price within the trading range of the specified number of periods chosen.

It tends to work best in trending markets, and just as with the RSI it is possible to look for divergences between the %R and underlying price movements.

What length of time period to use

Although the indicator was developed on a ten day period length, many software systems now use a 14 day default (same as the RSI). As with all technical analysis, there are no hard and fast rules, and the shorter the period chosen the more volatile the outcome. To achieve less whipsaw action, it is best to use a wider periods range, but this of course results in less signals.

Original trading rules

Larry Williams set the following original trading rules for the indicator:

1 Buy when %R reaches -100%, and five trading days have passed since -100% was last reached, and after which the %R again falls below -85/95%.

2 Sell when %R reaches 0%, and five trading days have passed since 0% was last reached, and after which the Williams %R again rises to about -15/5%.

Some technical analysts simply suggest selling when %R reaches -20% or lower, an overbought level, and buying if it goes below -80%. This is too simplistic, and CFD trades will know that using any overbought/oversold indicator in such a standalone manner is doomed to failure.

The reason is that especially on a trading range breakout, a new trend can immediately become highly overbought and remain so for a long time. The same goes with a big fall (say following a profits warning) which can see a share remaining oversold for a long time while the price continues to trend down – you do not want to be buying then!

It is therefore best, as with all these types of indicators, to wait for the underlying price to change direction before going with the trade. You could quite easily combine the Williams %R with a MACD or TEMA indicator to give you more comfort that you are trading with the trend.

About the Author:

Mike Estrey is the Head of Research for Blue Index, the Day Trading specialists in Contracts for Difference. Foreign Exchange Trading also forms part of their extensive services.

Technical Trading of Stocks

These days, a lot of folks turn toward technical indicators and oscillators to trade stocks instead of looking solely at the fundamentals of a company and its stock. With this type of trading, you are looking for trends on charts and graphs that signal a buy or sell of a particular stock.

There are general groups of technical indicators that can assist in helping you form an opinion on buying and selling stock, options or forex. They are as follows:

  • Trend Analysis – Looking at short and long-term trends to find points where it crosses over the long-term averages.
  • Pattern Analysis – Looking for such things on the charts such as a head and shoulders pattern, triangle patterns, pennants, etc.
  • Trading Ranges – Looking at support and resistance lines and seeking a breakout from the pattern.
  • Relative Strength Index (RSI) – Looking at a stock’s performance recently compared to its historical strength. With this you are looking for overbought or oversold conditions which might suggest a reversal of the trend.

A good place to start reading an introduction on technical indicators and oscillators would be at with the article: Introduction to Technical Indicators and Oscillators.

For a list of some of the more popular overlays and indicators in use and links to more in-depth information in each, you can look at at the page: Technical Indicators and Overlays.

Then there is a good article that’s should be a guide for people new to technical trading. This comes from John Murphy, currently with He was the technical analyst for CNBC show called Tech Talk. He’s also authored several books on the subject such as “Technical Analysis of the Financial Markets“. You can read up on his laws for technical trading at: John Murphy’s Ten Laws of Technical Trading.

I hope reading through these resources will help give you a better sense of technical trading and help you decide if it’s something for you. At the very least, it’s something you can study and chart on paper for a while and see what works best for you.

If you have a favorite indicator or oscillator that you use and think others would find it very useful, please share more info with us in the comments section.

Stock Chart Trading Indicator Scan Tool

As I’ve searching for interesting and useful trading tools over the years, one I always found interesting to look at was one from a site called

On the site they have some predefined scans for various bullish and bearish technical indicators, candlestick patterns, and P&F (point and figure) patterns. The scan looks for the different patterns they have listed for stocks in all the exchanges that they cover over the previous day. When you click on the links, you can see a list of the stocks that meet the pattern criteria.

If there are certain types of chart patterns you are looking for, this can be a quick and easy way to at least get a list of stocks to do further research on. You can get directly to the predefined scan by going to the following link: Predefined Scan