One of the best ways to improve your trading is to experiment.
It’s how I found that a combination of Bollinger Bands (2,20), MACD, relative strength (RSI), Williams’ %R, and Money Flow (MFI) can help lead to success as high as 80%.
Over the next few years, I’ll add or delete indicators to strengthen my findings. But the one indicator I will never leave out is Williams’ %R. That’s because it’s the ultimate indicator – which turns higher or lower before a stock, or index turns.
Williams’ %R (W%R)
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Every time Williams’ %R drops to or below its 80-line, a stock is considered oversold.
Then, shortly after that happens, the stock – even the index as seen with the DJIA – begins to pivot higher. In fact, if we look at the last 10 instances of W%R at 80, we can see the DJIA pushes higher not long after.
In addition, each time W%R pushes to or above the 20-line, the stock – even the index – becomes overbought. Again, if we look at the last 10 instances of this happening on the DJIA, we can see that W%R has pinpointed exact pivot points at highs.
Then again, we never want to rely on a sold indicator.
So, we begin to look at other key ones to strengthen our argument for potential reversal. For example, we can use Bollinger Bands (2,20), relative strength (RSI) along with W%R.
When W%R is at its 80-line for example, and the DJIA is at its lower Bollinger Band, with RSI at its 30-line, nine times out of 10 we’ll see a reversal higher shortly thereafter. Or, when W%R is at its 20-line, and the DJIA is at its upper Band with RSI oversold at its 70-line, we can again see that many times, we’ll see a reversal lower.
It’s just something to keep in mind, as you hunt for oversold and overbought opportunities.