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Williams Percent “R”

 

Williams Percent R is a momentum indicator developed by Larry Williams that is essentially, the inverse of the Fast Stochastic Oscillator indicator.

 

The “standard” period setting for Williams Percent R, at least according to almighty google is a 14 period setting. The 14 periods will reflect whichever time frame your assessing. If you’re looking at a daily chart – 14 days will be used, a weekly chart – 14 weeks, and so on.

 

Whichever period number you choose, the basic premise of %R is to reflect the level of the close within a high and low range for the selected period. The construction, again, isn’t where I focus my efforts. Its what the indicator helps me understand that I prefer.

 

Much like Bollinger Percent B, Williams Percent R is designed to signal overbought and oversold market conditions. I’m not going to choose one over the other. I use them both at different times and in the image below you’ll see how I use %R.

 

To identify, using %R, the current market condition;

  • -20 – Overbought
  • -80 – Oversold

 

Anything beyond -80 or -20 would signal extreme conditions and likely suggest a reversal could be coming. However, when using %R & %B its important to let the new trend materialize before jumping on a trade, often times stocks can remain overbought or oversold for several months.

 

For this reason, I strongly prefer %B over %R. %B has shown to only enter extreme territory when a reversal is coming very soon. %R can take a while, at least in my experience. That said, they’re both good tools to have in the tool box.

 

Take a look at how I use %R.

 

Click to Enlarge.

Williams Percent R
Williams Percent R Analysis

 

As you can see, I use 3 different %R graphs on my charts with 3 different period settings (circled above). They are;

  1. 3 period (Fast)
  2. 10 period (Intermediate)
  3. 14 period (Slow)

 

Why 3 different settings?

 

It gives me a quick visualization of how soon a reversal could take place. When all 3 periods are either overbought or oversold a change may be coming soon. Not always of course but it offers 3 different perspectives. In addition, instead of 3 indicators on each chart I might use the 14 period indicator on the daily, 4hr, and hourly charts to identify overbought or oversold conditions across all timeframes.

 

Also, don’t feel as if this is the only period setting combination to use or that you have to use a combination at all. Off the top of my head, I’m thinking a 10, 20, and 30 setting graph may be interesting to look at. The idea, is to see which combination offers the most consistent or most timely information. To do so, I would back test the indicator over several years and periods to confirm or deny effectiveness.

 

Remember, we’re trying to predict the future here and the only way to… well… at least believe that’s possible is to test different technical theories.

 

That about wraps it up. Got something to say?

 

Share it with us in the comments section.

 

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