Technical Studies: Williams %R

The Williams %R indicator, created by Larry Williams, is a lagging lower indicator designed to generate overbought and oversold signals for a particular security.

It is plotted on a 0 to -100 scale. A reading within the 0 to -20 range suggests the security is overbought (price decrease may be due). A reading within the -80 to -100 range suggests an oversold condition (price increase may be due). Similar to the Full Stochastics study, a reading at the top of the scale (0) indicates that the security closed at its trading high during a given period; a reading at the bottom of the scale (-100) indicates that the security closed at its trading low during the period.

Some technical analysts have argued that the %R, as it is commonly known, has predictive abilities. Some have suggested that the indicator often forms bottoms and turns up prior to the security's price reversing upward. Similarly, some analysts have suggested the indicator often forms a top and turns down just before the security's price reversing downward.

Buy and sell signals may also arise when the %R and the security's price experience a divergence. A bullish divergence situation occurs when a security's price reaches lower lows while the %R forms a higher low. The buy signal may appear when the %R crosses above the -80 level. A bearish divergence situation may occur when a security's price reaches higher highs while the %R forms a lower high. The sell signal may appear when the %R crosses below the -20 level.

Calculating the Williams %R: The customizable default period for the %R is 14 (minutes/hours/days/weeks/months). The formula for the Williams %R is as follows:
%R = (Highest high during period - Today's Close)
divided by (Highest high during period - Lowest low during period)
× -100