Williams Percentage Range

Williams’ % R, invented by Larry Williams, is an indicator that aims to identify when a market instrument is overbought or oversold. It is similar to the Stochastic Oscillator but with the difference that the %R is shown in an inverted (upside-down) way. The %R indicator values are between 0 and 100%. When they are between 80% and 100% this suggests that the market is oversold and when it is between 0% and 20% then it suggest the instrument has been overbought. There are two horizontal lines that represent the 20% to 80% levels. When the value is 0% it shows that the closing price is the same as the period high. The %R works best in a trending market. The Williams’ %R indicator is designed to show the difference between the periods’ high and today’s closing price with the trading range of the specified period. The indicator therefore shows the relative situation of the closing price within the observation period.

Calculation
%R = (High - Close)
(High - Low)

Where,


Close — today’s closing price

High — highest high over a number (n) of previous periods.

Low — lowest low over a number (n) of previous periods.

Signals
  • When Williams’ %R reaches 20% or lower it indicates it is time to sell.
  • Buy when Williams’ %R reaches 80% or higher then it is time to buy.

You should always take into account when you are using overbought/oversold indicators as it is better to wait for the indicator price to change direction before opening any trade.

Larry Williams defines the following trading rules for his %R:

  • Buy when %R reaches 100%, and five trading days have passed since 100% was last reached, and after which the %R again falls below 85/95%.
  • Sell when %R reaches 0%, and five trading days have passed since 0% was last reached, and after which the Williams %R again rises to about 15/5%.