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Williams %RThe Williams %R indicator is a momentum indicator that measures overbought/oversold levels which was developed by the US author/trader Larry Williams. The formula for the Williams %R indicator is:
The calculation and interpretation of the Williams %R is very similar to that of the Stochastic Oscillator. The noticeable differences are that the Williams %R is plotted upside down with negative values, and that it has no smoothing and therefore is more erratic than the Stochastic. You can see the indicator at the base of the chart below.
The Williams %R indicator is plotted using a scale of 0 to -100 with reference lines placed at -20 and -80. A common interpretation is that values of above -20 and below -80 are significant. Values below -80 normally indicate that the security is oversold while values above 20 normally indicate overbought. Furthermore, the most effective way of using the overbought/oversold indications is to wait until there is cross of the respective reference lines. For example, when the indicator is below -80 and therefore in an oversold area, it may be prudent to wait until the indicator crosses back above the -80 reference line to provide a long signal. Similarly, when the indicator is above -20 and therefore in an overbought area, it may be prudent to wait until the indicator crosses back below the -20 reference line to provide a short signal. It is not unusual for overbought/oversold indicators to remain in an overbought/oversold condition for an extended period of time as the security's price continues to climb/fall. Just like the Stochastic Oscillator, you may also consider placing a short term moving average on the Williams %R indicator which may help provide slightly earlier signals.
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