Understanding Williams %R

Williams %R is a simple momentum oscillator explained by Larry Williams for the first time in 1973.It shows the relationship of the close relative to the high-low range over a set period of time.

Typically, Williams %R is calculated using 14 periods and can be used on intraday, daily, weekly or monthly data. The time frame and number of periods will likely vary according to desired sensitivity and the characteristics of the individual security. The scale ranges from 0 to -100 with readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold.

This momentum indicator is, in fact , the inverse of the Fast Stochastic Oscillator. The default setting for Williams %R, as said above, is 14 periods, which can be days, weeks, months or an intraday timeframe. A 14-period %R would use the most recent close, the highest high over the last 14 periods and the lowest low over the last 14 periods.

The indicator would appear below the price chart on your trading screen. An example of how Williams %R would look is given below.

Reading W %R signals.

Here’s a collection of pointers you should be following in order to interpret William %R signals correctly.

  • Williams %R moves between 0 and -100, which makes -50 the midpoint. A Williams %R cross above -50 signals that prices are trading in the upper half of their high-low range for the given look-back period. Conversely, a cross below -50 means prices are trading in the bottom half of the given look-back period
  • Low readings (below -80) indicate that price is near its low for the given time period. High readings (above -20) indicate that price is near its high for the given time period.
  • Williams %R makes it easy to identify overbought and oversold levels. Readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold. However,  It is important to remember that overbought does not necessarily imply time to sell, and oversold does not necessarily imply time to buy. A security can be in a downtrend, become oversold and remain oversold as the price continues to trend lower. Once a security becomes overbought or oversold, traders should wait for a signal that a price reversal has occurred
  • %R can be used to gauge the six month trend for a security. 125-day %R covers around 6 months. Prices are above their 6-month average when %R is above -50, which is consistent with an uptrend. Readings below -50 are consistent with a downtrend. In this regard, %R can be used to help define the bigger trend (six months).
  • Like all technical indicators, it is important to use the Williams %R in conjunction with other technical analysis tools.

You may like these posts:

  1. Types of indicators/Oscillators
  2. Understanding Average Directional Index (ADX)
  3. Understanding Stochastic oscillators.

2 Responses to “Understanding Williams %R”

Trading Tips

July 28, 2011 at 11:52 am

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