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Williams'
%R
Description
The
formula used to calculate Williams' %R is similar
to the Stochastic Oscillator:
Williams'
%R is plotted on an upside down scale with 0 at
the top and 100 at the bottom.
To show the indicator in this upside down
fashion, MetaStock
Pro places a minus symbol before the %R
values. You
should ignore the minus symbol.
Interpretation
The
analysis of Williams' %R is very similar to that
of the Stochastic
Oscillator except that %R is upside down and
the Stochastic Oscillator has internal smoothing.
Readings
in the range of 80 to 100% (remember to ignore the
minus symbol) indicate that the market is
oversold, while readings in the 0 to 20% range
suggest that the market is overbought.
As
with all overbought/oversold indicators, it is
best to wait for the security's price to change
direction before placing your trades.
For example, if an overbought/oversold
indicator (such as the Stochastic Oscillator or
Williams' %R) is showing an overbought condition,
it is wise to wait for the security's price to
turn down before selling the security
(the MACD is a good indicator to monitor
change in a security's price).
It is not unusual for overbought/oversold
indicators to remain in an overbought/oversold
condition for a long time period as the security's
price continues to climb/fall.
Selling simply because the security appears
overbought may take you out of the security long
before its price shows signs of deterioration.
An
interesting phenomena of the %R indicator is its
uncanny ability to anticipate a reversal in the
underlying security's price.
The indicator almost always forms a peak
and turns down a few days before the security's
price peaks and turns down.
Likewise, %R usually creates a trough and
turns up a few days before the security's price
turns up. |
