Williams Percent Range

Description

The Williams Percent Range indicator identifies where the closing price is relative to the total price range of n periods. It is an oscillator that is similar to the stochastic oscillators, but is plotted upside-down in the negative range.

Formula

The %R indicator is defined as follows:

 %R  = (CP - Hn) / (Hn - Ln) * 100

where CP = Latest Closing Price, n =  the number of periods, Ln = the Lowest ask price over the last n periods, and Hn = the Highest bid price over the last n periods.

Parameters

The Williams %R indicator has one parameter, namely n, specifying the number of periods over which the price range should be considered.

Interpretation

Because the %R indicator measures where the closing price is in relation to the total price range of the selected number of periods, the argument is made that if the closing price is close to the recent highs, in which case the indicator is in the range between -80 and -100, then the market is oversold and a correction upward is likely. Similarly, if the closing price is close to the recent lows, in which case the indicator is in the range between 0 and -20, then the market is overbought and a downward correction is likely.

Others believe that a buy signal is achieved when the prices reach new lows and the Williams %R curve fails to surpass its previous lows. Conversely they believe a sell signal is achieved when the prices reach new highs and the Williams %R curve fails to surpass its previous highs.