Williams %R (pronounced 'Williams percent R') is used to measure when a security is either overbought or oversold. It fluctuates between 0 and 100%.
Though its interpretation is similar to the Stochastic Oscillator, William %R is plotted upside-down. This means that readings of between 80% and 100% indicate a security is oversold, not overbought, and readings between 20% and 0% signify that the security is overbought, not oversold.
When a security's price reaches the overbought or oversold range, the price will typically start heading in the other direction soon. However, its possible prices will remain at these extreme levels for a while before they begin their descent or climb, so some analysts recommend waiting until the price makes a reversal before exiting or entering the market.
Analysts also use William %R to predict price reversals. William %R will typically hit a peak or a trough and then reverse shortly before the security's price follows the same pattern.
To calculate William %R, you use various data about a security's highest and lowest prices over a given time period.
The formula used to calculate Williams' %R is similar to the Stochastic Oscillator:
The strategies described in this article are for information purposes only, and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision. Securities are subject to market fluctuation and may lose value.