Williams’ Percent Range Technical Indicator (%R) is a dynamic technical indicator, which determines whether
the market is overbought/oversold. Williams’ %R is very similar to the
Stochastic Oscillator. The only
difference is that %R has an upside down scale and the Stochastic Oscillator has internal smoothing.
To show the indicator in this upside down fashion, one places a minus symbol
before the Williams Percent Range values (for example -30%). One should ignore the minus symbol when
conducting the analysis.
Indicator values ranging between 80 and 100% indicate that the market is
oversold. Indicator values ranging between 0 and 20% indicate that the
market is overbought.
As with all overbought/oversold indicators, it is best to wait for the security’s
price to change direction before placing your trades. For example, if an overbought/oversold
indicator is showing an overbought condition, it is wise to wait for the security’s
price to turn down before selling the security.
An interesting phenomenon of the Williams Percent Range indicator is its uncanny ability to
anticipate a reversal in the underlying security’s price. The indicator almost
always forms a peak and turns down a few days before the security’s price peaks
and turns down. Likewise, Williams Percent Range usually creates a trough and turns up a few days before
the security’s price turns up.
Calculation
Below is the formula of the %R indicator calculation, which is very similar
to the Stochastic Oscillator formula:
%R = (HIGH(i-n)-CLOSE)/(HIGH(i-n)-LOW(i-n))*100
Where:
CLOSE — is today’s closing price;
HIGH(i-n) — is the highest high over a number (n) of previous periods;
LOW(i-n) — is the lowest low over a number (n) of previous periods.