Williams %R (pronounced "percent R") is a
momentum indicator that measures overbought/oversold levels. Williams %R was
developed by Larry Williams.
The interpretation of Williams' %R is very similar to
that of the Stochastic Oscillator
except that %R is plotted upside-down and the Stochastic Oscillator has internal
To display the Williams %R indicator on an
upside-down scale, it is usually plotted using negative values (e.g., -20%).
Readings in the range of 80 to 100% indicate that the
security is oversold while readings in the 0 to 20% range suggest that it 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 (such as the Stochastic Oscillator or Williams' %R) is
showing an overbought condition, it is wise to wait for the security's price to turn down
before selling the security. (The MACD is a good
indicator to monitor change in a security's price.) It is not unusual for
overbought/oversold indicators to remain in an overbought/oversold condition for a long
time period as the security's price continues to climb/fall. Selling simply because the
security appears overbought may take you out of the security long before its price shows
signs of deterioration.
The following chart shows a Williams %R oscillator:
The formula used to calculate Williams' %R is similar to
the Stochastic Oscillator: :