Willium’s %R is an oscillator used in technical analysis to predict overbought and oversold areas, which moves from 0 to -100. Where 0 is overbought zone and -100 is oversold zone. However the standard Overbought is -20 and oversold is -80. Overbought means when the share price reached temporary high and there is a probability for the share to fall from that level due to high selling pressure and low buying pressure. Oversold means when a share reaches temporary bottom price and there is a probability for the share price to move up as buyer’s might get interested to enter at that price hence buying pressure increases and selling pressure decreases.
How to calculate Willium's %R
To calculate Willium’s%R we need High, Close and Low prices of any stock from last 14 periods (or as the period value is).
Willium’s%R = [High (of 14 Period) – Close]/[High (of 14 Period) – Low(of 14 Period)]
The Period is a default period of last 14 look back period. The High is the highest of last 14 periods and Low is the lowest of last 14 periods. Periods is the number of candle backward from the current candle, where current candle can be any candle in the chart.
How to use Willium's %R for Trade
Willium’s %R in standalone might not be sufficient to take any trading decision. This indicator however gives us an indication if the Stock reached temporary Overbought or oversold areas, but that never guarantees Sell or Buy respectively. This is just an indication to make a trader aware of the stock’s tentative movement probability.
For traders who wants to trade in favor of the trend, might choose to take Buy position when its overbought area or in Uptrend and Sell when it is on oversold area or in Downtrend. Traders who wants to trade in reversion strategy might Short in overbought and plan to Buy in oversold areas.
But none of the actions mentioned above can ensure profit, but these can be an approach for different traders to plan their strategy.