I am not sure, what the standard setting is on it. I used the bigcharts.com website for that chart, you can check the setup there. So far it is amazing. Yesterday it signaled twice EARLIER by 10 minutes, just like a good signal supposed to do. I am testing now how it works with one averaging down/up, since it has the tendency to be early by a few minutes/10points.
You answered your own question..............."%R works well in a sideways market". When a market makes new highs or lows within the time frame you're looking at, the %R will be at an extreme. Will the market reverse? What if it keeps going in the same direction and the %R remains "stuck" where it is?
I've seen Larry in person twice. Both times he went out of his way to point out that Lane didn't invent the stochastic indicator, but rather popularized it. He mentioned the guys name that did, but I don't remember it. I've always suspected %R is his way of insulting Lane. When I saw Larry, he was always quick to give credit to other people for their work.
Williams%R 10 is identical (except the reversed scale) with Fast Stoch 10,1 and Full Stoch 10,1,1. I guess LW just named this set of Stoch parameters after himself, and as most traders have no clue how an indicator is calculated, or what were his inventor's intentions, the new name and the word that it is a leading indicator spread. <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=996116>
%R is only good when used in the following two ways 1. in overbought(oversold) territory you enter positions with sell/buy stops 2. Bullish or bearish divergences. Rare with %R, but very powerful. %R can be discarded if you are using other indicators like Schotastic or RSI. They are redundant.
2 ways to deal with the problem: 1. Keep using it consistently with a stop loss. Sure there will be times when it doesn't work, but in the long run it makes profit. Example: today. The first 2 signals didn't work, but the next 4 did, and they made up for the 2 losses... 2. Wait for a trend and after a runup or selloff start to use it for 3-4 signals, in the consolidation phase.
When are people going to understand that all those indicators are derivatives of price and actually provide *less* information than the price itself? And they have absolutely no forcasting value whatsoever... What you currently see in %R is just coincindental. The time will come that you will get burned badly using it. A couple of years ago I made 10K+ euros in 3 months day-trading 1 FDAX, fading the most popular stochastic settings. Amazing how Williams (and others) with very simplistic and naive formulas (which any high-school student mathematically inclined can devise) created such a hype and selling all those garbage trading books....
I never bought a book on Williams. I check out different indicators, and if I like what I see, I test them. If it doesn't work, I throw it away, if it works, it gets introduced to my trading arzenal. Occasionally I use an indicator not how it was intended, but the way how I think it is useful... I will testtrade Williams today, I will report back how it went....