Home > management, Markets, trading > Profitable ETF Trading Strategies: a closer look at Williams%R with 2 improvements

Profitable ETF Trading Strategies: a closer look at Williams%R with 2 improvements

In a previous article, I described how I use Williams %R as a useful oscillator in determining an asset can be considered an overbought or oversold conditions based on the context of recent price action in a defined look back period. I like to use 10 days and one year for context. 

I use the 10 days of look back to give me insights into short-term trader psychology. I use the one year look back period to give me insights into long-term trader psychology. In some of my systems I combine both of these measures to give me a consolidated, integrated look at market psychology. 

There’s nothing magical about the use of these two specific time frames, nor do I believe that they have any predictive power were cheap theoretical connection to the way the market works, objectively. I simply find them useful to help me frame my trades and understand the market enough so that I can take action. 

 I have not exhaustively analyzed different time frames to see if there is an incremental advantage for adjusting the parameters, I am simply satisfied that they work good enough to get me into the ballpark for decent trading opportunities. 

The two problems that I have with Williams %R are these: 

(1) the scale ranges from a high score of zero to a low score of -100. My problem with this is that it is not intuitive and if I were to design this indicator I would use a scale of 0 to 100 which for me is easier to see. 

(2) Williams %R incorporates today’s price action in the development of the zero to -100 scale. Normally this is good enough, but there are days when the price of the asset has made a bold break out from the last 10 days trading range. The weight indicator is constructed, you cannot tell this from the reading. If I were to design this indicator from scratch, I would describe today’s price action on a normal scale of 0 to 100 that looked back 10 days starting from yesterday. That means that if today’s price exceeded the highest high of the last 10 days it can have a reading greater than 100 and conversely if it had a lower low than the low of the last 10 days it could have a negative reading. This change would allow you by inspection to identify breakout candidates in both directions and a relative magnitude of the breakout depending on how far from the 0 to 100 scale the new reading stands. 

Nevertheless, Williams %R is a simple excellent indicator for most of my trading purposes, and I highly recommend it’s use and study for beginning and journeyman traders. 

Recently, I have seen some trading systems with simple rule sets built exclusively from Williams %R which happened use a 30 period look back rather than the standard 10. I’ve only looked at the rule sets superficially, and while the entries makes sense the exits look clumsy and nonintuitive.

  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: