Previously I talked about Parabolic SAR indicator and that it can be used with Williams %R indicator. It is similar to Stochastic Oscillator with the difference that Williams %R has upside down scale while Stochastic Oscillator has internal smoothing.
What is Williams %R indicator?
Williams %R indicator was developed by Larry Williams and it is a momentum indicator. It is usually used to find overbought and oversold levels in non-trending markets. The value of William %R is static 0 to -100. Readings below -20 are considered overbought and readings above -80 are considered oversold. The usual time period is 14-days for this indicator. Note that when conducting your analysis you shouldn’t pay attention to the minus in the %R value.
Basically, if within that time period the price is near the high end of the price range then the equity is usually considered overbought. And if it is near the low end it usually means it’s oversold.
Williams %R is considered to be a leading indicator – meaning that the line of Williams %R gets to the top or bottom before the price does. Often it is suggested to before making your move, wait until the price actually moves. Williams %R is interesting in the meaning that it almost always forms a peak and turns down a couple of days before the stock’s price peaks and turns down.
Here is the calculation for Williams %R indicator –
Williams %R = (HIGH(i-n)-CLOSE)/(HIGH(i-n)-LOW(i-n))*100
HIGH(i-n) is the highest high over a number (n) of previous periods and LOW(i-n) is the lowest low over a number (n) of previous periods.