The trend lines
Sometimes you do not need to use tools like the moving averages. If you have some experience in drawing the trend lines, it is also a good way to look for where to enter the position.
In the example below, the price is in a down trend. When a correction occurs, we can draw the trend line.
The price moved to the 38.2% level and down below the green trend line. It turned out that this was a false signal. In the next move, after hitting the 50% level, there was a break below there’d support line. This signal was correct and it was a good place to enter the position.
Break below support line as a signal to go short.
The Williams %R as confirmation
You can use oscillators as a source of a confirmation signal. If you have your favorite oscillator, test it and check what signals work as best confirmation.
My favorite one is the Williams %R. Most of the time, I use it for 33 back periods. For time frames lower than 1 hour, I use 55 periods.
It is a slightly different oscillator, because its range is between 0 (at the top) and -100 (at the bottom). When the line is between 0 and -20,then the price is overbought. When the line is between -100 and -80, the price is oversold; similarly to the stochastic oscillator, but the levels are different.
What I look for as regards the Williams %R are two things:
- A break of important support/resistance on an oscillator– I use it especially when the price action is not clear for me.
Many people do not know that you can draw support, resistance and trend lines on the oscillators also! I find it to be very useful. When the price action is too blurry for me, I look for some tips on an oscillator chart by drawing the trend lines there.
- A break in the overbought or oversold area.
In an uptrend, when there is a correction, I look at the oscillator and wait until its value is back at the -20 level and then I enter a long position.
Opening a trade with signal from Williams %R.
In another example, there is a strong trend down. There is a correction, but the price action is not that clear. What I look for is the %R back at the -80 line. When it happens, I enter my short trade.
Short position opened based on signal from Williams %R.
It is not a 100% correct signal and it is not the best tool to choose in all cases. In my trading, I find this to be quite good and effective. With good money management and using the Williams %R, your results should be better.