Williams% R 60 seconds
The Williams% R is an analysis tool as simple as effective, created by Larry Williams already in 1973.
The oscillator is very similar to the stochastic; while the latter uses the difference between the closing and the lowest low, Williams% R refers to the difference between the end and the highest high.
W% R fluctuates between 0 and -100, virtually inverted scale compared to normal oscillators, and the overbought threshold is identified with values above -20 while the oversold with values below -80.
The oscillator identifies some good situations characteristics of the market, namely the depletion stages of a trend. In fact, if in a strong market closing prices are not able to remain close to the maximum, it means that the trend is weakening and we may have the opportunity to sell.
By contrast, in a downward oriented market with the closing prices that are no longer able to remain close to the minimum of the range we could have a buying opportunity.
Such situations are well highlighted by the W% R.
The classic oscillator use, however, generates a lot of false signals. Where the W% R, on the other hand, excels, is in the identification of bullish and bearish divergences.
Remember that a bearish divergence occurs when prices make new highs while the oscillator has lower highs. Conversely we see a bullish divergence if prices are marking new lows while the oscillator will have higher lows.
These are situations that do not occur very often, but when it happens we have the opportunity to trade with a high probability of success.
According to what we have just said, when the W% R rises above the overbought line at a maximum in the market, then descends again and in the next upward movement of prices is not able to overcome the previous peak, a bearish divergence is created. It is evidence of a loss of bullish movement strength and the market is potentially ready to reverse the trend.