The Williams %R technical indicator

Developed by Larry Williams, the %R (Percent Range) is a momentum indicator that is the opposite of the fast stochastic oscillator. It reflects the price level relative to the retrospective period's high. However, the stochastic oscillator reflects the level closest to the lowest value.

The %R corrects the inversion by multiplying the raw value by -100. As a result, the fast stochastic oscillator and Williams' %R produce exactly the same lines, but with a different scale.

The Williams %R oscillates from 0 to -100; readings between 0 and -20 are considered overbought, while reads from -80 to -100 are considered oversold. As expected, the signals derived from the stochastic oscillator are also applicable to Williams' %R.

Calculating the Williams %R

R% = ((H - C) / (H – L)) x -100;

C - the last closing price;
L - the lowest price in a given period;
H - the highest price in a given period.

The default setting of Williams% R is 14 periods, which can be days, weeks, months or an intraday period.

Understanding the Williams %R indicator

The indicator tells you where the current price is in relation to the highest price of the last 14 periods (or the number of periods chosen).

When the indicator is between -20 and zero, the price is overbought, or close to the peak of its recent price range. When the indicator is between -80 and -100, the price is oversold, or far from the peak of its recent range.

During an uptrend, traders can monitor the direction of the indicator below -80. When the price starts to rise and the indicator goes back above -80, it may indicate that the upward price trend is starting again.

The same concept can be used to identify selling opportunities in a downtrend. When the indicator is above -20, expect the price to start falling and Williams' %R to drop below -20 to signal a potential continuation of the downtrend.

It is important to note that overbought readings are not necessarily bearish. A currency pair may become overbought and remain overbought during a strong upward trend. Closing price levels that are consistently near the top of the range indicate sustained buying pressure. In the same vein, oversold readings are not necessarily bullish. A currency pair may also be oversold and remain so if there is a strong downward trend.

Momentum failure

Not returning to overbought or oversold territory indicates a change in momentum that may predict a significant price movement. The ability to constantly move above -20 is a show of strength. After all, it takes buying pressure to push the %R into overbought territory. When a currency pair shows its strength by pushing prices more than once into overbought territory, the non-exceeding of this level indicates weakening momentum that may foretell of a decline.

Like all technical indicators, it is important to use Williams' %R in conjunction with other technical analysis tools. Volume, chart patterns and breakouts can be used to confirm or refute the trading signals produced by the Williams %R.

Price divergence with the Williams Percent Range indicator

Price divergences with the %R indicator are not frequent, but they are often reliable when one wants to anticipate a trend reversal.