Williams’ %R

What

Developed by Larry Williams, Williams %R is a momentum indicator that works much like the Stochastic Oscillator. It is especially popular for measuring overbought and oversold levels. The oscillator is on a negative scale, from -100 (lowest) up to 0 (highest). Such a scale is a little unusual and is sometimes found altered (by adding 100), but needn't cause any confusion. A value of -100 is the close today at the lowest low of the past N days, and 0 is a close today at the highest high of the past N days.

How

%R = [(highest high over ‘n’ periods - close)/(highest high over ‘n’ periods - lowest low over ‘n’ periods)] * -100

Typically, Williams %R is calculated using 10 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.

When

Williams used a 10 trading day period and considered values below -80 as oversold and above -20 as overbought. But they were not to be traded directly, instead his rule to buy an oversold was

• %R reaches -100%.
• Five trading days pass since -100% was last reached
• %R rises above -95% or -85%.

or conversely to sell an overbought condition

• %R reaches 0%.
• Five trading days pass since 0% was last reached
• %R falls below -5% or -15%.

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. The "close-position within a range" in the %R indicator is the same as the %K stochastic oscillator, on a different scale.