What are the differences between Stochastic and Williams %R?
The Stochastic and the Williams %R They are two technical indicators for trading that are quite similar. Both are oscillators, that is, they work well in sideways trends, and poorly in uptrends or downtrends. They are widely used by traders who operate on the stock market (futures, stocks or Forex).
The Stochastic indicator is an oscillator that has three parameters, usually taking the values 14-3-3. For the medium and long term I prefer the 14-6-3 parameters, because the profile it draws is smoother. Seeing a chart of the Ibex 35 with three indicators. The top one is the Stochastic with parameters 14-6-3, the middle one is the Stochastic indicator with parameters 14-3-3, and the bottom one is the Williams %R indicator:
As you can see, all three are similar. The main difference is that the 14-6-3 Stochastic indicator has a smoother profile and gives fewer false signals for medium and long-term investors, while the Williams %R indicator is much more “edgy” and has more teeth. saw, leaving the Stochastic indicator 14-3-3 halfway between the two.
Due to its smoother profile and fewer false signals when trading, I believe that for medium and long-term investors the 14-6-3 Stochastic indicator is preferable, but if, for whatever reason, you prefer one of the other two, use it quietly. You can also use the Stochastic with other different parameters that seem better to you.
Both the Williams %R indicator and the Stochastic indicator are two oscillators that are based on the same idea. That idea is that when an uptrend is developing, the close of the last bar is usually quite close to the high of the last few bars. It can happen that in an uptrend the close of a bar is well below the high of the last bars, but it is not usual. Similarly, when a downtrend is developing, it is usual for the close of the last bar to be quite close to the low of the last market sessions.
This implies that when an uptrend is ending, the close of the last bar is getting further away from the high of the last bars, usually (although not absolutely always). And that when a downtrend is ending, the close of the last bar is further and further away from the low of the last bars. This can help you perform a better analysis and better define the market entry price.
How do these technical indicators work?
The technical indicator Williams %R takes the price in values between 0 and 100. It is usually represented between 0 and -100, with 0 being the maximum overbought level, and -100 being the maximum oversold level. Based on these data you can start doing your analysis.
The Stochastic technical indicator takes the price in values between 0 and 100. It can never take values less than 0 or greater than 100. 100 is the maximum overbought level, and 0 is the maximum oversold level. Based on these data you can start doing your analysis.
In the Stochastic (oscillator) two horizontal lines are drawn, which mark the overbought and oversold areas. These two lines are usually placed at 80 and 20, or at 70 and 30. They can be placed wherever each investor wants, but these values are the most common. They are used simply to give the graph a little more clarity, it is not very important to use some values or others, nor do they affect the Stochastic calculation in any way.
If the market is between 30 and 70, for example, it is marking that the oversold zone is between 0 and 30, and that the overbought zone is between 70 and 100. It is simply a visual reference, these figures have no meaning. influence in the calculation of the Stochastic, as I was saying. In the Williams %R (oscillator) these two lines are also usually drawn, in the same values and with the same characteristics, to be simply a visual reference. In both cases, you can place these horizontal references where they are most useful to you.
Although the Williams %R indicator and the Stochastic indicator are helpful for trading, you should not base all your trading on any technical indicator or oscillator to trade Forex absolutely, but they are very helpful for your analysis. and operate in the financial markets.