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.
