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Williams %R, or just %R, is a technical analysis oscillator showing the current closing price in relation to the high and low of the past N days (for a given N). It was developed by a publisher and promoter of trading materials, Larry Williams. Its purpose is to tell whether a stock or commodity market is trading near the high or the low, or somewhere in between, of its recent trading range.
The oscillator is on a negative scale, from -100 (lowest) up to 0 (highest), considered unusual since it is the obverse of the more common 0 to 100 scale found in many Technical Analysis oscillators. Although sometimes altered (by simply adding 100), this scale needn't cause any confusion. A value of -100 is the close today at the lowest low of the past N days, and 0 is a close today at the highest high of the past N days.
Williams used a 10 trading day period and considered values below -80 as oversold and above -20 as overbought. But they were not to be traded directly, instead his rule to buy an oversold was
- %R reaches -100%.
- Five trading days pass since -100% was last reached
- %R rises above -95% or -85%.
or conversely to sell an overbought condition
- %R reaches 0%.
- Five trading days pass since 0% was last reached
- %R falls below -5% or -15%.
The timeframe can be changed for either more sensitive or smoother results. The more sensitive you make it, though, the more false signals you will get.
Due to the equivalence
the %R indicator is arithmetically exactly equivalent to the %K stochastic oscillator, mirrored at the 0%-line, when using the same time interval.