The %R Williams indicator is a momentum indicator developed by Larry Williams that measures
overbought and oversold levels. The indicator was published in 1979 in the book How I Made One Million Dollars...
Last Year... Trading Commodities.
This indicator is very similar to the %K Stochastic, with the exception that it is
plotted using negative values ranging from 0 to -100 and that the Stochastic has its own smoothing.
The period to be chosen depends on the trading cycle considered.
Calculation Method
where:
p: period considered
Hp: the maximum of the highs over period p
Lp: the minimum of the lows over the period
C: closing price of the last day
The %R Williams indicator was initially formulated by Larry Williams in 1979 to return a positive value.
The value became negative in later publications, either due to a transcription error or to make high values intuitively
coincide with overbought zones.
Example
Interpretation
Theoretically, if the indicator is above -20, the instrument is overbought, and the instrument is oversold when
the indicator oscillates below the threshold of -80.
An interesting feature of %R Williams is its ability to anticipate trend reversals. It very often forms a peak
and then falls back a few days before the stock does so.
The same applies in the other direction.
