Name, Sometimes Called:
Williams’ %R (percent R)
Abbreviated to W%R, sometimes just %R
Brief Description:
Similar to Lane’s Stochastics,
Williams’ %R is a momentum
indicator popular for measuring overbought and oversold levels.
Definitions, Formulas:
Williams’ %R (W%R or %R) is a momentum
indicator that is often used to measure overbought
and oversold
levels. It works much like the Stochastics
indicator, except that
- %R ranges between –100 and zero and Stochastics ranges between
zero and 100
and
- the Stochastics indicator uses internal smoothing while %R does
not.
To calculate %R, first select the period n. The period
n=14 is most often used, and we use it here. Note that
the period’s unit can be within a day (for example, hourly), days,
weeks, or months. You may select the timeframe according to desired
sensitivity and the characteristics of the individual security.
Next, determine
HH = the highest high in the n periods
LL = the lowest low in the n periods
CC = the current close
Then
%R = -100 * ( (HH – CC) / (HH – LL) )
Notice that values of %R are negative and that the maximum value
is zero.
Positive Development Calculation:
Since values for %R are negative, increasing toward
zero, a new positive development (NPD)
is when %R crosses above the -80 level, or %R x+ -80 AND today's
closing price is greater than yesterday's closing price (the price
rose).
Using the same consideration, this technical analysis indicator
is no longer positive when %R is greater than -70, that is, when
%R is -69 or greater.
If this TAI is still positive tomorrow, it will no longer be new,
but will be a cumulative positive development (CPD).
If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD).
History:
Larry Williams (P.O. Box 8162, Rancho Santa Fe, CA
92067) developed the %R indicator. Colby (in his book The Encyclopedia
of Technical Market Indicators, 2nd. ed., McGraw-Hill, 2003,
p. 774) claims that %R is the “exact inverse” of Stochastics. While
it is the inverse, the smoothing applied in the Stochastics calculation
means it is not “exact.”
The %R TAI is often used to find overbought
and oversold
levels. However, as others have cautioned, overbought does
not necessarily imply time to sell, nor does oversold necessarily
imply time to buy.
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