Williams R Indicator

Williams R Indicator: What Is It And How It Is Calculated?

While doing online share trading you must have thought it's pretty basic. In online share trading, all you have to do is buy stocks when the prices are low and sell them upon booking a profit. While online share trading may seem basic at first, it involves various markets, charts, patterns, and indicators that can help predict stock performance.

One such indicator is the William R indicator. Larry Williams, a famous charting enthusiast, invented Williams %R. Additionally, it is inverse to the Fast Stochastic Oscillator. Williams %R is also called Percent R. Additionally, it shows where the current close is in relation to the highest high of the lookback period. Here's a detailed look at the William R indicator. 

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Table of Content

  1. Williams R Indicator: What Is It And How It Is Calculated?
  2. What is Williams R Indicator?
  3. What is Williams R Formula
  4. How is the Williams R indicator Calculated?
  5. Few things you should know about Williams R Indicator
  6. Limitations of Williams R Indicator
  7. Conclusion

What is Williams R Indicator?

Williams R Indicator was developed by Larry Williams, a famous stock and commodity trader and author. Basically, it is a type of momentum indicator that is used in technical analysis to identify optimal entry and exit points for stocks. Moreover, it's the inverse of another momentum indicator, the Fast Stochastic Oscillator.

A Williams R Indicator is also called Williams %R or Williams Percent Range, and it ranges from 0 to -100. These numbers between the range indicate the stock's situation and tell whether it is overbought or oversold. Williams %R oscillates between 0 and -100, with 0 to -20 being overbought and -80 to -100 being oversold. In this way, an indicator tells if a stock is strong or weak.  

Additionally, there are lots of things you can do with the indicator, like identifying overbought or oversold levels, confirming momentum, and finding trade signals. Also, it compares the closing price of a stock to its high-low range over a specified period, usually 14 days. 

What is Williams R Formula

If you want to implement the Williams percent range strategy, you need to understand its formula. Especially when dealing with complex trading scenarios, this indicator can help you make good decisions. You can calculate Williams R using the formula below:

Williams R Formula = Highest High – Current Close / Highest High – Lowest Close  x (-100)

In the above formula:

  • Highest High = A price that was highest during the look-back period
  • Lowest Low = A price that was the lowest price during the look-back period
  • Current Close = It's the stock's most recent closing price
  • Multiply the indicator by -100 and move the decimal point. 

How is the Williams R indicator Calculated?

Prices over the past 14 periods are used to calculate Williams R. Here's how it's calculated:

  • Take note of the high and low of each period over 14 periods.
  • Fill in all variables in the Williams R formula with the current, highest, and lowest prices on the 14th period.
  • After the 15th period, determine the new Williams R based on the current, highest, and lowest prices (for only the last 14 periods).
  • Use this formula every period, using only the last 14 period 

Few things you should know about Williams R Indicator

  • Like most momentum indicators, the Williams R shows up in a separate window below the price chart. In the middle line, it's plotted against -50, which helps you tell if a trend is strong.
  • Williams R is based on the assumption that a stock's price usually closes at new highs in an uptrend. When a trend goes down, new lows keep appearing.
  • The indicator is scaled from 0 to -100 and only looks at the last 14 periods. A reading above -50 indicates that the price is moving upward. When it shows a reading close to -100, it indicates that the stock price is oversold.
  • Although the indicator shows oversold or overbought levels, it does not necessarily indicate a stock price reversal. If the stock is oversold, it means that its price is at the lower end of the recent range, while if it is overbought, it means that it is near the top of the recent range.
  • The Williams R indicator gives you trade signals when the price and indicator cross overbought or oversold zones.
  • To make the most of the Williams R indicator, you should combine it with other technical analysis tools.

Limitations of Williams R Indicator

Here are the limitations of the Williams R Indicator:

A Williams %R can show you whether a stock is overbought or oversold, but this does not necessarily imply a reserved trend. You may incur losses if you take positions solely based on Williams's %R data.

Additionally, it is possible for the Williams R Indicator to overanalyze data when it is too responsive. This can give you false signals. For instance, the Williams R Indicator can signal oversold by moving higher. However, the price might not follow. 

Conclusion

Online share trading seems straightforward at first, but it involves a variety of factors and indicators that can influence your trading decisions significantly. One such indicator is the Williams R Indicator, which was developed by Larry Williams. In technical analysis, it serves as a tool for identifying optimal entry and exit points for stocks. 

Williams R Indicator also called Williams Percent Range, ranges from 0 to -100. A value between 0 and -20 indicates overbought conditions, while a value between -80 and -100 indicates oversold conditions. However, there are limitations to the Williams Percent Range. Therefore, Williams R Indicator should be used with other indicators, charts, and market trends to make the best trading decisions.

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Williams R Indicator FAQs

Both metrics are range-bound, but stochastic RSI moves between 0 and 100, while William's %R fluctuates between 0 and -100.

By default, Williams %R's overbought threshold is -20 and its oversold threshold is -80.

The Williams %R Indicator is leading.

Keep a record of the high and low for each period over a period of 14 periods. Then note the current price, the highest price, and the lowest price on the 14th period.

Williams %R tells you if a stock is overbought or oversold. In other words, it tells you where the best entry and exit points are.