Williams percent R indicator is a momentum indicator that is the inverse of the Fast Stochastic Oscillator. It is an indicator that moves between 0 and -100.
What is William Percent R Indicator?
Williams percent R indicator was developed by Larry Williams. This indicator is providing insight into the weakness or strength of a stock. Williams %R Indicator is used in various capacities including overbought or oversold levels.
More Points on William Percent R Indicator
- This indicator is also momentum confirmations and providing trade signals.
- In Williams percent R indicator, Readings from 0 to -20 are considered overbought.
- In the same way of this indicator, Readings from -80 to -100 are considered oversold.
- Williams percent R indicator reflects the level of the close relative to the highest high for the look-back period.
William Percent R Indicator with Zerodha Kite
If the traders are want to get more details regarding the Williams percent R indicator, then please open the STUDIES section of Zerodha Kite. The traders are also visiting this indicator in Kite mobile App. The Period is 14 and if you want to change the value of Period then you can change it. The traders can also check to attach process of the Williams %R indicator to Reliance Industries shares price chart. This indicator is available includes daily, weekly, monthly or intraday.
Calculating %R = (Highest High – Close) / (Highest High – Lowest Low) X -100
Highest High = This is the highest price over the lookback period.
Lowest Low = This is the lowest price over the lookback period.
The final calculation of %R is multiplied by -100 correct the inversion and move the decimal.
Interpretation of the Williams Percent R Indicator :
Williams %R indicator makes it easy to identify overbought and oversold levels. The oscillator ranges from 0 to -100. Williams percent R indicator will always fluctuate within this range.
Overbought and Oversold
In this indicator, traditional settings use -20 as the overbought threshold and -80 as the oversold threshold. When the readings are above -20 for the 14-day then the Williams %R indicator would indicate that the underlying security was trading near the top of its 14-day high-low range. Although the readings below -80 occur when a security is trading at the low end of its high-low range.
In this indicator, generally, overbought readings are not necessarily bearish before looking at some chart examples. Securities of Williams percent R indicator can become overbought and remain overbought during a strong uptrend. Closing levels that are consistently near the top of the range indicate sustained buying pressure of this indicator.
In the same way, oversold readings are not necessarily bullish. Securities of the Williams %R indicator can also become oversold and remain oversold during a strong downtrend. Closing levels consistently near the bottom of the range indicate sustained selling pressure of this indicator.
How this indicator works :
- Williams %R indicator moves between 0 and -100, which makes -50 the midpoint. In this indicator, Williams %R cross above -50 signals that prices are trading in the upper half of their high-low range for the given look-back period (Bullish).
- The chart reflects, across below -50 means prices are trading in the bottom half of the given look-back period (Bearish).
- In the Williams %R indicator, the readings above -20 for the 14-day Williams %R indicator would indicate that the underlying security was trading near the top of its 14-day high-low range. Although, the readings below -80 occur when a security is trading at the low end of its high-low range.
- The above chart is showing a bullish divergence. As you can see the price is making lower lows while the indicator is making higher highs. And, as a result, the stock price went higher later. This refers to as bullish Divergence.
- The reverse is bearish divergence. When the price makes higher highs but the indicator makes lower lows, the stock price is about to go down soon. The same scenario is being reflected in the above chart.
Pros and Cons of the Indicator
- Williams percent R strategy has the uncanny ability to show a reversal, long before the reversal actually takes place.
- This property helps traders to exit or prepare to take a position before price action.
- The indicator almost always forms Peaks and turns down a few candles before price peaks and turns down. Similarly, it makes troughs early and climbs before price bottoms out.
- One must wait for the price action to take place. Williams percent R strategy has a habit of remaining in the oversold/ overbought region for a long time until price action takes place.
- Therefore unless price reversal is confirmed from oversold/ overbought levels, it is not wise to take buy/ sell position. Because, even though Williams %R shows oversold/ overbought position, the stock may continue to fall/ climb for long and hit Stop Loss unnecessarily.
The chart above shows an hourly chart of Nifty future (June series). The Williams %R makes a trough and reaches nearly -100 percent and starts moving up on 16 June 2017, 15.15 hours. But the price moves later and starts with the gap up on 19th June morning. Anybody taking a buy position in Nifty on 16.06.17 after 15.15 would have made a handsome profit by 19.06.17.
Nifty moved more than 70 points. Similarly on 09.06.17. in the same hourly chart, Williams %R touched -20 percent and started coming down long before price moved with a gap down candle.
Williams percent R strategy if combined with another indicator like MACD (to ascertain price movement) becomes a strong tool and a trader can benefit immensely from this fantastic combination if used judiciously. Check how to use Williams Percent R in a trading system in Aibroker: Designing A Trading System On Amibroker Like Big Trends Toolkit.