Williams %R measuresoverbought/oversold. The most widely used method for interpreting Williams %Ris to buy when the indicator rises above 80 or sell when the indicator fallsbelow 20. Williams %R is a momentum indicator.It indicates that the essence ofhis trading system is based on interpreting readings of %R. William %R,sometimes referred to as %R, shows the relationship of the close relative tothe high-low range over a set period of time. The nearer the close is to thetop of the range, the nearer to zero (higher) the indicator will be. If theclose equals the high of the high-low range, then the indicator will show 0(the highest reading). If the close equals the low of the high-low range,
This method is used to decidemarket entry and exit point. The %R always ranges in between the value of 100and 0. For day-trading, when % R reaches 10% or lower it is considered a sellindicator and when it reaches 90% or higher it is considered as a buyindicator. Williams %R takes into account ten trading periods to determine thetrading range. Once the ten-period trading range is determined, the %R iscalculated where current periods closing price fall within that range. Thesignal is most useful in trending markets.
Williamss %R has proven veryuseful for anticipating market reversals. It identifies overbought or oversoldmarkets. It is important to remember that overbought does not necessarily implytime to sell and oversold does not necessarily imply time to buy. A securitycan be in a downtrend, become oversold and remain oversold as the pricecontinues to trend lower. Once a security becomes overbought or oversold,traders should wait for a signal that a price reversal has occurred. One methodmight be to wait for Williams %R to cross above or below -50 for confirmation.Price reversal confirmation can also be accomplished by using other indicatorsor aspects of technical analysis in conjunction with Williams %R.
One method of using Williams %Rmight be to identify the underlying trend and then look for tradingopportunities in the direction of the trend. In an uptrend, traders may look tooversold readings to establish long positions. In a downtrend, traders may lookto overbought readings to establish short
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