Definition
Williams %R is a momentum indicator that gauges overbought and oversold conditions in a market. This popular technical analysis tool oscillates between 0 and -100, providing traders insights into market conditions, generally over a specified period (often 14 days). The indicator indicates times where securities are overbought (price too high) or oversold (price too low), assisting traders in making informed decisions.
| News | Indicator |
|---|---|
| 🙅♂️ Overbought | Reading above -20 |
| 🙇♀️ Oversold | Reading below -80 |
| 🕵️♂️ Usage | Generates trade signals |
Formula
The formula for Williams %R is:
\[ \text{Williams} %R = \frac{{\text{Highest High} - \text{Close}}}{{\text{Highest High} - \text{Lowest Low}}} \times -100 \]
Important Points
- A reading above -20 indicates an overbought condition, suggesting that prices are higher than what is considered normal.
- A reading below -80 indicates an oversold condition, suggesting that prices are lower than what is valued.
graph LR
A[Closing Price] -->|Used in| B(Highest High)
A -->|Used in| C(Lowest Low)
B -->|Determines| D[Williams %R]
C -->|Calculates| D
Examples
-
Overbought Example: If a stock has closed at $95, and the highest high over the last 14 days is $100, while the lowest low is $90, the Williams %R will be calculated as follows:
\[ \text{Williams} %R = \frac{100 - 95}{100 - 90} \times -100 = -50 \]
A reading of -50 means the stock is nowhere near overbought as it’s still below -20.
-
Oversold Example: If a stock closes at $85, the highest high is $90, and the lowest low is $80:
\[ \text{Williams} %R = \frac{90 - 85}{90 - 80} \times -100 = -50 \]
Related Terms
- Momentum Indicator: Measures the speed and direction of price movements.
- Overbought: Condition where the price of an asset is considered too high.
- Oversold: Condition where the price of an asset is considered too low.
Fun Facts & Humorous Insights
- William %R does not enjoy fortunes aesthetically, but traders sure do when they can predict price movements with it! 🎉
- “Trading without Williams %R is like wandering in a maze without breadcrumbs. You might just end up going in circles!” 🥴
- Created by trading wizard Larry Williams, it’s said he can read the market as easily as he reads his morning coffee! ☕️
Frequently Asked Questions
1. Can Williams %R only be used with short time frames?
- Williams %R is versatile! It can be applied over any time frame, from seconds to years. Just be willing to embrace the advice!
2. Does an overbought reading guarantee a price drop?
- Not necessarily! Overbought just means the price is at the higher end of its range; it’s like being on top of a Ferris wheel—you can go down, but you might enjoy the view a bit longer! 🎡
3. How do I interpret a Williams %R reading of -50?
- A -50 reading suggests you’re neither in overbought nor oversold territory. In trader-speak, that’s called ‘Middle Earth.’ ⚔️
References to Online Resources & Suggested Books
- Investopedia: Williams %R Overview
- “Technical Analysis of the Financial Markets” by John J. Murphy
- “Encyclopedia of Technical Market Indicators” by Charles D. Kirkpatrick II
Test Your Knowledge: Williams %R Trivia Quiz
Thank you for exploring the fascinating world of Williams %R with us! Remember, whether you feel overbought or oversold today, there’s always room to learn and grow in the world of trading! 📊 Keep those indicators handy, and happy trading!
