Traders, especially those who are Trading Forex or Crypto Currencies, often use the Williams %R indicator to help them make informed trading decisions. But what is Williams %R and how can you use it effectively in your trading? This blog post will explore that question and provide some tips on using Williams %R to improve your trading results. So, if you’re wondering what Williams %R is all about or how you can start using it in your own trading, then read on!
What is Williams %R
Williams %R is a technical indicator that measures overbought and oversold conditions in the market. It is used by traders to identify potential turning points in the market. The indicator ranges from 0 to -100, with readings below -80 indicating oversold conditions and readings above -20 indicating overbought conditions.
The Williams %R is a momentum oscillator, which means it cycles between overbought and oversold levels. When the indicator is overbought, it is time to sell, and when it is oversold, it is time to buy. While the Williams %R can be used on any time frame, it is most commonly used on daily charts.
The formula for the Williams %R
The formula for the Williams %R indicator is very simple:
Williams %R = (Close – Highest High) / (Highest High – Lowest Low) x 100
The resulting number will be between 0 and -100, with readings above -20 indicating overbought conditions, and readings below -80 indicating oversold conditions.
Calculating Williams %R
To calculate Williams %R, first identify the highest high and lowest low of the period you are interested in. For example, if you are looking at a daily chart, you would find the highest high and lowest low of the past 14 days. Once you have found these values, calculate difference between highest high and last close, subtract the lowest low from the highest high and then divide this number by the highest high. The resulting number is then multiplied by -100 to create the Williams %R reading.
While Williams %R can be useful in identifying overbought and oversold conditions, it is important to note that these conditions can persist for extended periods of time. As a result, it is important to use other tools in your analysis in order to make trading decisions.
Using Williams %R in Your Trading
Usual period for Williams %R is 14-day and ranges from 0 to -100. A reading below -80 indicates that the security is oversold, while a reading above -20 indicates that it is overbought. A buy signal is generated when the indicator moves from oversold territory to overbought territory, while a sell signal is generated when the indicator moves from overbought territory to oversold territory.
In addition, Williams %R can be used to identify divergence between the price of a security and the indicator. Divergence occurs when the indicator moves in the opposite direction of the security’s price. This can be used as a potential buy or sell signal.
The Williams %R VS. Stochastic Oscillator
The both indicators are similar, the difference is only that Williams %R uses negative scale range. The 0 value of the Williams %R is identical to the 100 of Stochastic Oscillator, while -100 is identical to the 0 of Stochastic Oscillator.
Limitations of Williams %R
Williams %R is not without its limitations. First, the indicator can produce false signals in choppy markets. Second, the indicator is based on closing prices, which means it does not take into account intra-day price movements. Finally, the indicator is not always accurate at predicting reversals, particularly in strong trends. Despite its limitations, Williams %R can be a helpful tool for traders who know how to use it correctly.
Conclusion
It’s important to understand that the Williams %R should never be used alone as a buy or sell signal. There are always other things you need to consider when making trading decisions. However, if you can use it correctly, it can be a valuable tool in your arsenal. If you’re interested in learning more about how we trade with Williams %R, subscribe to our Williams %R based trading strategies for free.
