Overbought and Oversold Levels using the Williams R Indicator

In technical analysis, Williams R is a momentum indicator that shows you whether an investment is trading near the top or bottom of its recent trading range. It is also called %R.

Williams %R for Ford Stock Prices as of July 2013
Chart courtesy of Stockcharts.com

This indicator is named after its creator, Larry Williams. It shows the relationship between closing price and the highest "high" price that has occurred over a period of time (usually 14 days).

Basically, it tells you whether an investment is trading near a recent high or the low. You can use the signals it generates for to enter and exit new or existing positions. Safe Investing Tip

Safe Investing Tip:
The Williams R is the inverse of the Fast Stochastic Oscillator. They display the exact same data, just with different scaling.

How to Interpret Williams R Signals

The Williams %R indicator generates values between 0 and -100.

A value of -20 to 0 signals that an investment is overbought.

A value of -80 to -100 signals that the investment is oversold. 

Williams %R for Ford Stock Prices as of July 2013
Chart courtesy of Stockcharts.com

How to Calculate Williams %R

You need access to three pieces of information to calculate Williams %R: price highs, price lows, and closing prices.

%R = (Highest High - Close)/(Highest High - Lowest Low) * (-100)

  • Highest High = Highest price during the time period
  • Lowest Low = Lowest price during the time period
  • Close = Most recent closing price
You'll need to choose the number of "periods" you want, with a "period" being days, weeks, months or even intraday (minutes, hours) timeframe.

The standard or default period for the Williams %R is 14 days.

If you choose a time period that is smaller than 14 days, the signals are more sensitive to price changes; a longer period creates a less sensitive or "smoother" response.

The more sensitive you make the signal, the more false overbought and oversold signals you will get.

How to Use Williams %R

Williams %R provides buy and sell signals based on how quickly a stock price moves up or down.

  • Overbought = Sell Signal
  • Oversold = Buy Signal

As with other technical indicators, relying on 1 type of indicator is not a robust way of making investment decisions.

Make sure that your process includes several different indicators. Using more than one indicator ensures that buy and sell signals are confirmed using several different methods.