Williams %R (aka
"percent R") by Larry Williams is a momentum indicator showing overbought/oversold
levels and is similar to the Stochastic Oscillator and is therefore
used in the same way. Unlike the Stochastic Oscillator, Williams
%R has no internal smoothing, and is plotted upside down - ignore
the negative signs. Values of Williams %R between 80% and 100% suggest
the stock is oversold while values between 0% and 20% range imply
it is overbought. Like other overbought/oversold indicators, wise
traders wait for the stock's price to confirm the change before
placing a trade, as overbought/oversold conditions can exist for
quite some time before the market actually reverses.
Probably the best indicator
for predicting a reversal in the underlying stock's price, the Williams
%R indicator usually peaks and turns down a few days before the
stock's price follows suit, or creates a trough and turns up a few
days before the stock's price turns up. Day trading systems using
this indicator are rare as it is more useful in swing trading.
To calculate Williams
%R, take todays close from the highest high in the period, divide
it by the highest high in the period less the lowest low in the
period, then multiply the result by 100.