Williams %R,/just %R, is: a technical analysis oscillator showing the: current closing price in relationāāto theāāhigh. And low of the past N days (for a given N). It was developed by, a publisher and "promoter of trading materials," Larry Williams. Its purpose isāāto tell whether a stock or commodity market is trading near the "high." Or the low. Or somewhere in between, "of its recent trading range."
The Williams %R (Percent Range), created by Larry Williams, "is a momentum oscillator." It represents the price level in relation to the highest point in the previous period. The default period is generally set to 14. By doing this, you can monitor overbought and oversold conditions. Since the Williams %R fluctuates between 0 and -100, this would mean that readings between 0 and -20 are overbought, while readings between -80 and -100 are oversold. This means that the Williams %R is a bound indicator.
The oscillator is on a negative scale, from ā100 (lowest) up to 0 (highest), obverse of the more common 0 to 100 scale found in many technical analysis oscillators. A value of ā100 means the close today was the lowest low of the past N days, and 0 means today's close was the highest high of the past N days. (Although sometimes the %R is adjusted by adding 100.)
Note
The original formula from his book multiplies the % with 100 instead of ā100. It is possible that another book/magazine printed it incorrectly and this mistake spread out. Many softwares have already implemented it as ā100.
Buy-/sell-signallingā»
Williams used a 10 trading day period and considered values below ā80 as oversold and above ā20 as overbought. But they were not to be, traded directly, instead his rule to buy an oversold was
- %R reaches ā100%.
- Five trading days pass since ā100% was last reached
- %R rises above ā95% or ā85%.
or conversely to sell an overbought condition
- %R reaches 0%.
- Five trading days pass since 0% was last reached
- %R drops below ā5% or ā15%.
The timeframe can be changed for either more sensitive or smoother results. The more sensitive you make it, though, the more false signals you will get.
Notesā»
Due to the equivalence
the %R indicator is arithmetically exactly equivalent to the %K stochastic oscillator, mirrored at the 0%-line, when using the same time interval.
Referencesā»
Book reference: Williams, Larry (1979). How I Made One Million Dollarsā¦ Last Yearā¦ Trading Commodities. Windsor Books. ISBN 978-0930233105.