The Williams Percent R indicator, often referred to as simply the “%R” is a momentum oscillator developed by Larry Williams that measures overbought/oversold levels on a scale of 0 to -100. It compares the current closing price with the highest high and lowest low for a look-back period; usually 14 days. The %R can then be used in combination with other analysis techniques such as trend lines or support/resistance levels to determine entry and exit points from market positions and generate buy and sell signals.
What is William’s Percent R Indicator?
The Williams Percent Range (%R) is a type of technical indicator that measures the level of overbought or oversold in a market. It compares the current price to the highest high and lowest low for a given period, typically 14 days, and is expressed as a value ranging from 0-100. %R can be used by traders to identify turning points early in momentum markets, helping them time their entries and exits more accurately.
Key Points on William Percent R Indicator
- This indicator is also momentum confirmations and provides trade signals.
- In William’s percent R indicator, Readings from 0 to -20 are considered overbought.
- In the same way as this indicator, Readings from -80 to -100 are considered oversold.
- William’s percent R indicator reflects the level of the close relative to the highest high for the look-back period.
How to Attach the %R Indicator on a Charting Platform?
If the traders can attach the Williams percent R indicator from 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 the Period then you can change it. The traders can also check to attach the process of the Williams %R indicator to Reliance Industries shares price chart. This indicator is effective on daily, weekly, monthly, or intraday charts.
Calculation of William Percent R (%R)
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.
How to Trade 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’s percent R indicator will always fluctuate within this range.
Trading Overbought and Oversold with %R
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’s 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.
William’s %R indicator moves between 0 and -100, which makes -50 the midpoint. In this indicator, William’s %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, readings below -80 occur when a security is trading at the low end of its high-low range.
Trading the Divergence
%R can easily identify divergence patterns. The chart below 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 a 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 reflected in the above chart.
Combining %R with Other Indicators
William’s 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.
Pros and Cons of the Williams Percent R Indicator
Pros of %R
- William’s 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 the price peaks and turns down. Similarly, it makes troughs early and climbs before the price bottoms out.
Cons of %R
- One must wait for the price action to take place. William’s 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 a buy/ sell position. Because, even though Williams %R shows an oversold/ overbought position, the stock may continue to fall/ climb for a long and hit Stop Loss unnecessarily.
Example of Trading with William Percent R Indicator
The chart above shows an hourly chart of the 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 the 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, William’s %R touched -20 percent and started coming down long before the price moved with a gap-down candle.
Check how to use Williams Percent R in a trading system in Aibroker: Designing A Trading System On Amibroker Like Big Trends Toolkit.
FAQ on %R
The Williams %R (Williams Percent Range) is a momentum indicator that measures overbought and oversold levels. It compares the current closing price to the highest and lowest prices of a predetermined recent period, usually 14 periods.
The williams percent range (or ‘%R’) is an oscillator of technical analysis which moves between 0 and -100. It helps traders identify trends, gauge how strong they are, view potential areas of support or resistance, find possible entry points for trades, and assess risk-reward scenarios.
Traders can use the Williams %R in different ways depending on their trade situation. A reading below -80 could indicate an asset is oversold while readings above -20 could suggest it’s overbought. Moreover, it might show traders when they should enter positions relative to market price levels or certain trading strategies such as breakouts from established ranges or trendlines may require further examination with this tool prior to execution.
To calculate William’s %R subtract the most recent period’s highest high from the current close then divide by the total True Range (TR). Finally, multiply this value by negative 100 because values less than zero need special attention The formula looks like this; (%R =((H14 – C)/TR)*(-100)). Where H14=Highest High Price From Previous 14 Periods; C=Current Period Last Price; TR=(Highest High-Lowest Low) Over Previous N Periods.
The Williams Percent R indicator is a valuable tool for investors to identify potential trading opportunities. It helps traders identify overbought or oversold securities and spot reversals in price momentum, allowing them to strategically invest with greater accuracy and success. While other indicators should be used in conjunction with the Williams Percent R, this indicator can give users insight into market movements and help them find suitable entry and exit points for their trades.