Williams %R
Williams %R, also known as Williams Percent Range, is a technical analysis indicator used in trading to measure overbought or oversold conditions in financial markets. It was developed by Larry Williams and is similar to the Stochastic Oscillator.
The Williams %R is calculated using the following formula:
%R = (H - C) / (H - L) * -100
Where:
- H is the highest price over a specified period (usually 14 periods).
- C is the closing price of the current period.
- L is the lowest price over a specified period (usually 14 periods).
The resulting value is a percentage that oscillates between -100 and 0. It indicates the relationship between the current closing price and the highest price and lowest price over the selected time period.
When the Williams %R reaches values close to -100, it suggests that the market is oversold, meaning the price has fallen too far and a potential price increase or rebound may occur. On the other hand, when the Williams %R approaches 0, it indicates the market is overbought, suggesting that the price has risen too much and a potential price decrease or correction may be imminent.
Traders use Williams %R in conjunction with other technical analysis tools to confirm potential buy or sell signals. For example, they might look for bullish divergence, where the price forms lower lows while the Williams %R indicator forms higher lows, indicating a possible reversal to the upside. Conversely, bearish divergence occurs when the price forms higher highs while the indicator forms lower highs, suggesting a potential downward reversal.
It's important to note that while the Williams %R can be a helpful tool, it should not be used in isolation and should be combined with other indicators and analysis techniques to make well-informed trading decisions.
