Williams %R is so named as it was first used by Larry Williams, a renowned trader who is famed for turning $10,000 into $1,147,607.10 in 12 months, thus making a hugely impressive profit of 11,376% and winning a prominent trading championship in 1987. In technical analysis terms, Williams %R is an oscillator. It measures overbought and oversold levels by plotting how the current price of a share, stock or security compares with its most extreme high and low prices over a set period of time. A zero value for the W%R means that the stock is at its very highest level that it has attained over the period in question, whereas a -100 level indicates that the stock is at its very lowest level to which it has fallen during the period.
The name Williams%R is often shortened to just W%R. It is very similar to the stochastistics indicator, one of the differences being that W%R effectively ends up with an "upside down" graph compared to stochastics graphs. The W%R graph itself is plotted using negative values, although the negative sign is often removed at the end of the calculation and on the actual graph itself. Another difference is that, unlike Williams %R, stochastics indicators have inbuilt smoothing, obtained by applying moving averages to the stochastics graphs.
Williams' %R CalculationAs with other oscillators, a period of time, usually representing a set number of days of data up to "now" or "today" is used. Typically a 10 or 14 day period of data is used but some traders may use as low as 5 days or as high as 21 days worth of data in the period under consideration in the calculations.
To obtain the Williams' %R figure for today, the following calculation is used:
W%R InterpretationSome analysts use a relatively simple interpretation of the Williams' %R, choosing to use 20% or below as a selling point, 80% or above as a buying point, refining this slightly by waiting until the stock or security's W%R rises back up above a certain level before buying (or conversely waiting until it drops below a certain level before selling). Some may choose to use a recrossing of the 80 mark as a bounceback level when deciding to buy whereas other stock market analysts may choose the 50 mark. Again, converse values of 20 or 50 may be used when making selling decisions.
Larry Williams is quoted as saying that he sees the use of the W%R only to identify overbought or oversold conditions. Such conditions on their own are not necessarily clear signs to immediately buy or sell. Stocks or shares may sometimes remain in a bought or sold condition for a considerable period of time as the price continues in a particular direction. Therefore, rather than using the W%R on its own, itshould be used in conjuction with other indicators when deciding when to buy or sell. The MACD is one indicator thought to be of particular help in these decisons.
Traders note that the W%R appears to give the best results in trending markets. Signals which are against the overall trend should probably best be avoided. Larry Williams himself has pointed out that divergences can be very dangerous and that many do not work any better than tossing a coin.
On a personal note I find divergences in general, with any stock indicator, to be particularly difficult to clearly identify, so in my mind Larry Williams' thoughts on W%R divergences are more of a positive than a negative comment. At least that means I can try to concentrate on other factors.
|Moving Average||MFI - Money Flow Index||Exponential Moving Average|
|RSI - Relative Strength Index||Moving Average Envelopes||ROC - Rate of Change|
|Fast and Slow Stoch Stochastics||W%R - Williams' %R||MACD|
|Standard Deviation Definition and Usage||Calculation of Standard Deviation||Normal Distribution and Standard Deviation|
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