Williams %R at Trade10.com- The science of trading market momentum for stocks, options, futures and bonds.

Critical Day Analysis

Our critical day analysis is all about trend reversals. We tell you when there is a high potential for a reversal of the short trend and we've been doing it since 1994 with an 80%* accuracy.

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Williams %R

The Williams %R is an indicator developed by Larry Williams and is similar to the Stochastic Oscillator in calculation but where the Stochastic compares the close to the lowest low over a specified period, the Williams %R compares the close to the highest high over a specified period.

The Williams %R is sometimes called Williams Overbought/Oversold Index.

When prices are trending, Oscillators like the Williams and Stochastics should be viewed with a careful eye when looking at overbought and oversold signals. Generally, when the oscillator is in overbought territory, a crossover into the middle range for the indicator is a signal that prices may fall near term.

When the oscillator is in oversold territory, a crossover into the middle range from below is often viewed as a buy signal leading the expectation of higher prices near term. However this type of interpretation works poorly when price is in a trending environment. In the graph above during the period of October to November, 7 sell signals were given through normal interpretation of the oscillator, where only 2 would have been successful indications of near term price action.

Oscillators also lend themselves to interpretation when divergences between the indicator and price occur.

A divergence of the peaks of price and the peaks of the indicator warns of potential reversal of price trend. A divergence between the troughs of price and the troughs of the indicator also warns of a potential reversal of price trend. On the graph the numbers 1,2,3 and 4 are placed above the period when a divergence in the peaks occurred. The number 5 and the lower part of number 3 show a divergence of the troughs. The price trend from October to mid December is down. You can see that although some of the divergence signals occur prior to a change in direction of the price trend, not all are tradable and some lead to whipsaws. It is important to build a wide body of evidence in support of any trade decision.

To the right technical studies are examined in more detail to provide a sense of conformational evidence for traders of the critical day. Click on any of the terms to take a closer look at a technical discussion on that topic. All formations, patterns, indicators and technical tools fail at various times and so should only be used to build a body of evidence in forming a trading decision rather than being solely relied upon. There are a number of valuable studies that lead to intuitive understandings about price and volume but a strong compliment to technical analysis is an understanding of the trends and changes in the fundamentals and economic activity that ultimately lead valuation levels in the markets.

Walk through a critical day

The graphs show a price plot of the Dow Jones Industrials from Sept 28/00 to early November. The First graph ends on November 3/00, two days before an upcoming critical day on November 7/00. Our members looking at the market are expecting a trend reversal to occur due to the high rate of success in our research. Ideally a member will be using their own skills to judge the supply and demand changes, using technical and fundamental indications to confirm suspicions of a reversal, and trade accordingly.
On the second graph we see that the price action on November 6 was a bullish day, reversing the short trend so that the short trend leading into the critical day is now up. A critical day is an expectation of a reversal of the short trend that immediately precedes the critical day. In the case of the November 7 signal, given to members 3 days before, is an indication that the upward moving trend, recognized at the close of November 6 is expected to reverse direction.
On the third graph we can see that November 7 was a low volatility after a large gain on November 6 of about 160 points for the Dow Jones Industrials. The subsequent move over the three days following the November 7 signal saw the Dow Jones Industrials fall 376 points. The next day, November 13, the Dow Jones Industrials lost an additional 83 points with intra-day low a full 609 point loss since the open on the critical day.

Most recent signals

A closer view of the most recent signals. You can see the short trend immediately prior to a successful critical day, reverses coming away from the critical day. Often a failed critical day will indicate a stronger bias in the market for continuation of the trend that was in place prior to the critical day. A failed signal can therefore provide as much information and opportunity as a successful one. Take a look at tech studies to develop a sense of trend reversals and use.

Tech Studies

Comparative Relative Strength

Congestion Pattern

Consolidation