What it is and how to use it
What is it?
Williams %R, also known as the Williams Percent Range, is a momentum oscillator that measures overbought and oversold levels in a market. It compares the current closing price to the highest high and lowest low over a specified period, providing insights into the market's relative positioning within that range. The indicator ranges from 0 to -100, with readings above -20 indicating overbought conditions and readings below -80 indicating oversold conditions.
Who made it?
Williams %R was developed by Larry Williams in 1973, and was introduced in his book "How I Made One Million Dollars Last Year Trading Commodities."
How is it calculated?
%R = (Highest High - Close) / (Highest High - Lowest Low) * -100
Where:
Highest High is the highest price over the lookback period.
Lowest Low is the lowest price over the lookback period.
Close is the most recent closing price.
Code (ProRealTime)
How do you use it?
You can use the Stochastic Oscillator in several ways to identify overbought and oversold conditions, gauge momentum, and spot potential reversal points.
Overbought/Oversold Conditions:
Overbought: When the Stochastic Oscillator rises above 80, it typically indicates that the asset is overbought and may be due for a pullback.
Oversold: When the Stochastic Oscillator falls below 20, it typically indicates that the asset is oversold and may be due for a rebound.
Momentum:
You can use Williams %R in several ways to make trading decisions:
Overbought/Oversold Conditions:
When the Williams %R is above -20, it indicates overbought conditions, suggesting that the asset may be due for a pullback. When the Williams %R is below -80, it indicates oversold conditions, suggesting that the asset may be due for a rebound.
Divergences:
Bullish divergence: Occurs when the price makes a new low but Williams %R forms a higher low, indicating weakening bearish momentum.
Bearish divergence: Occurs when the price makes a new high but Williams %R forms a lower high, indicating weakening bullish momentum.
Trend Confirmation:
Williams %R can also be used to confirm the strength of a trend. During a strong uptrend, Williams %R often remains in the -20 to -50 range. During a strong downtrend, it often stays in the -50 to -80 range.
Signal Generation:
Enter long positions when Williams %R moves below -80 and then rises above it, and enter short positions when Williams %R moves above -20 and then falls below it.
FAQ
Q: Is Williams %R a leading or lagging indicator?
A: Williams %R is a leading indicator. It helps predict reversals by comparing the current closing price to the high and low prices over a specified period.
Q: What are the best settings for Williams %R?
A: The default setting for Williams %R is usually 14 periods, but you can adjust it to suit your trading style. Shorter periods can give more signals, while longer periods smooth out the indicator.
Q: Can Williams %R be used alone to make trading decisions?
A: Williams %R can give you some good signals, but it's usually better to combine it with other indicators to confirm trends and avoid false signals.
Strategies using the Williams %R indicator
None so far.
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