In our study of technical analysis, overbought and oversold indicators are vastly infiltrated throughout many momentum and oscillating indicators. What you should know about them though is that they shouldn't be used on their own. Let's take a look at the Williams %R for instance.

Notice how the %R indicator is telling you to buy in May, June, December, and March, yet the price was still going down.

The purpose of this is to show you that you cannot rely on any overbought or oversold indicator by itself. Let's compare what we would have known through using another indicator for confirmation, to what we see in the above.

As you can see, although %R was showing buy signals, the RSI was stagnant and producing negative divergence if anything. The Bollinger Bands were compressing, but in the first instance, the price didn't explode till a couple weeks after the June %R was indicating to buy. More recently, in March of 07, the bands are squeezed very closely and %R was indicating to buy a couple of weeks ago, yet we see the RSI producing negative divergence. If the divergence changes, and %R drops a bit more, we can assume to see another significant move upward in the near future.

Just remember, to use overbought and oversold signals successfully, makesure you use them in conjunction with another indicator for confirmation.