Williams %R (Williams Percent Range), or Percent R as it is also known, is a technical indicator that can help traders to identify when an asset is oversold or overbought.
Having ascertained that the asset has moved too much in one direction or another, we can then position ourselves to benefit from a likely price reversion.
Williams %R is thought of as a momentum indicator, having been conceived by American trader and technical analyst Larry Williams.
%R was first introduced in Williams’ 1979 book How I Made $1,000,000 Trading Commodities Last Year.
The Larry Williams trading strategy works by comparing the closing prices of an asset to its high-low price range over a given time period.
In this way, traders can potentially better identify optimum buy and sell points.
%R, sometimes called the wpr indicator, tends to be thought of as the inverse of the Fast Stochastic Oscillator.
While the Fast Stochastic considers the closing price in relation to the lowest low over the period, %R evaluates the close price in direct comparison to the highest high.
%R is calculated as: (Highest High – Closing Price) / (Highest High – Lowest Low) x -100
The highest price represents the highest registered price during the particular time period.
Likewise, the lowest price is the lowest recorded during the time period.
As the closing price is at the end of the particular period, many traders recommend waiting until the current candlestick bar has ended before acting on the %R signal.
In an especially volatile market, a candlestick chart can quickly oscillate from one direction to another.
In practice, you should never need to calculate %R as it is a typical indicator found in the charting tools of trading platforms.
While Larry Williams originally used the formula with a 10-day trading period, you should be able to vary the time period to fit your particular trading strategy.
It’s worth bearing in mind that many charting packages tend to offer %R with a default period of 14 days.
The Williams %R equation will give a result in the range of 0 to -100.
Should we get a reading of 0 to -20, then the %R is telling us the asset is overbought.
On the other hand, should %R fall in the range of -80 to -100 then the asset is oversold.
As with technical indicators, %R is best used in conjunction with other analytical tools rather than in isolation.
For example, %R can be combined with other indicators such as trading volumes and chart patterns.
As a general rule, any technical signal that is accompanied by higher trading volumes is likely to be viewed as more reliable than one observed amid relatively weak volumes.