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My first trading venture was a simple one: buy stocks at low prices and then sell them when you make a profit. Trading is not like everyday life. I soon learned that it was anything but simple. First, there are many markets where different assets can be traded. These charts, patterns, and trend indicators can help me predict the performance of my securities. Every time I thought I was a market expert, I learned something new: a new trading strategy, a new philosophy or an indicator. The Williams R indicator is one indicator I found very interesting.
The Williams Percent Range indicator, which was created by Larry Williams, an American stock and commodity trader and author, is a momentum indicator. It is considered the opposite of the Fast Stochastic Oscillator, a momentum indicator. This indicator, also known as Percent R, is the ratio of the market's current close to the highest peak in a look back period.
Williams oscillates from 0 to 100, with the 0 to 20 range being considered overbought and the -80-to--100 range being considered oversold. The indicator gives insight into the strength and weakness of a stock. It can be used to identify overbought and oversold levels, confirm momentums, find trade signals, etc. This indicator compares the closing stock price to its high-low range for a period of time, usually 14 days.
If you want to use the Williams percent range strategy for trading, it is important that you understand its structure and formula. This indicator is useful for making prudent trading decisions in complex situations. To calculate the Williams R indicator, use the formula below.
| Williams % R = | Highest High – Current Close | X (-100) |
| Highest High – Lowest Close |
1. Highest price = The highest price paid during the lookback period
2. Lowest low = The lowest price in the look-back period
3. Current Close = The most recent stock closing price
4. By correcting the inversion, and moving the decimal, the indicator is multiplied with -100.
Williams is calculated using price over the past 14 periods. The indicator must be calculated.
1. Over 14 periods, record each period's highs and lows.
2. Take note of the current, highest, and lowest prices for the 14th period. Fill in all variables in the Williams R formula
3. Note the price of the current period (for the 14 most recent periods only), and calculate the Williams Rvalue.
4. As each period ends, continue to use this formula using only the data from the previous 14 periods.
1. Like most momentum indicators, the Williams R indicator appears in a separate window below the price chart. It is plotted against a -50 range in middle line which helps to distinguish the strength of a trend.
2. Williams R is based on the assumption that a stock's price closes at new highs during an uptrend. Conversely, new lows are frequent during a downtrend.
3. This indicator is only focused on the last 14 periods. However, it can be scaled between 0 and 100. It is considered to be rising if it shows a reading of more than -50. It should read close to 100, which indicates that the stock price is oversold.
4. The indicator may show an indicator that is either oversold, or overbought. However, this should not be taken as a sign that stock prices will reverse. Oversold means the stock's price is at the lower end of its range. While overbought indicates the stock's price is close to its highest point in its range.
5. Williams R can be used to generate trade signals when both the indicator and price move out the territory of oversold or too high.
You should use the Williams R indicator in conjunction with other technical indicators as you do with all technical indicators.
The Williams R percent range indicator is the key to trading signals. Its primary function is to identify oversold or overbought areas. However, it can also be used in conjunction with other technical indicators that help you identify bullish and bearish divergences and failure swings.
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