The Williams %R indicator, also known as the Williams Percent Range, is a momentum indicator that some traders use to find entry and exit points for their positions. This indicator moves between the range of 0 to -100, where 0 is used to indicate maximum buying in the market and -100 is used to indicate maximum selling in the market.
Traders usually consider a reading above the -20 range towards 0 as a signal of overbought in the underlying market and a reading below the -80 range towards -100 as a signal of oversold.
What is the WR indicator?
WR indicator should be used to find entry and exit points in the market. This indicator is similar to the Stochastic oscillator and has a similar function. This indicator was developed by Larry Williams and compares and evaluates the stock’s closing price with the low range over a certain period, which is usually a 14-day period.
Key points about the WR indicator
● When using the WR indicator, you should note that an overbought or oversold reading doesn’t mean the price will reverse. Overbought means that the price is close to its recent highest range, and oversold means that the price is close to its recent lowest range.
● when the price and the indicator move out of the overbought or oversold territory, it can generate trading signals, i.e., a signal to buy or sell the stock.
How to calculate the WR indicator
● The WR indicator is calculated based on the price, usually the last 14 days.
● On the 14th day, the current, highest, and lowest prices are recorded. Formula variables for Williams %R can now be filled in.
● On the 15th day, the current, highest, and lowest prices are noted, but only for the last 14 days (not the last 15 days). Finally, the new Williams %R value is calculated.
● At the end of each period, a new Williams %R will be calculated using only the last 14 days of data.
What information does the WR indicator give you?
This indicator tells the trader how the current price is relative to the highest high over the last 14 periods (or whatever number of lookback periods is chosen). During an uptrend, traders can watch for the indicator to move below the 80 range. Then, when the price starts to move up, and the indicator goes back above -80, it can indicate that the price uptrend has begun again.
The same concept can be used to find short-term trades in a downtrend. When the indicator is above the -20 range, the price is likely to start to decline, and the Williams %R will return below -20 to signal a possible continuation of the downtrend.
Traders can also watch out for momentum breakouts. For example, the price often reaches -20 or higher during a strong uptrend. If the indicator turns bearish and fails to break back above 20 before turning bearish again, the price’s upward movement is in trouble, and further declines may follow. As a result, it will be an excellent time to sell stocks.
The same concept applies to the downtrend. It is rare for the indicator to be in the range of -80 or less. When the index stops reaching low levels, the price will probably go higher, and it will be an excellent time to buy stocks.
The Difference Between Williams %R and the Fast Stochastic Oscillator
The WR indicator shows the closing level of the market during the reversal period. Conversely, the Stochastic Fast Oscillator, which moves between 0 and 100, indicates a market’s close in relation to the lowest low. The WR indicator corrects this value by multiplying by -100. The WR indicator and the Fast Stochastic Oscillator are both momentum indicators. The only difference between the two is the scaling method.
Limitations of using the WR indicator
verbought and oversold readings on the indicator don’t mean a price reversal. The Overbought readings actually help confirm an uptrend, as a strong uptrend should regularly see prices make or break previous highs. The indicator can also not give you the correct answer about this, which means you can get many false signals from it. For example, the indicator may be in an oversold zone and start to move higher, but the price is in a bearish position. This happens because the index only looks at the last 14 days. So as periods go by, the current price relative to the highs and lows in the lookback period changes, even if the price hasn’t really moved.
WR indicator trading strategies
Popular WR indicator trading strategies include buying a base market when the indicator rises above -80 or selling a base market when the indicator drops below -20. For example, if the market trend is reading above -80 to 0, a trader may assume that the price is currently bullish, and there will be a bullish rally. In this case, they can get a signal that prices will continue to rise. A trader may hold a position until the Williams %R moves above -20, at which point a saturated buy signal can indicate that they should sell the stock to take a profit.
On the other hand, a trader may interpret a reading below -20 to -100 as a signal that the market is bearish. A trader will likely hold a short position until the Williams %R moves below -80. At this point, they can take the saturated sell signal as a sign to close their sell position and take any profits.
Things to keep in mind when trading Williams %R
When trading Williams %R, it is essential to remember that saturated buy or sell signals do not necessarily mean that the overall market trend is reversing. Instead, a high buy signal can mean that the underlying market price is near the top of its previous range, and a high sell signal can indicate that the price is close to the previous low.
Summary of the WR indicator
The WR indicator is a momentum indicator. This indicator uses values between 0 and -100 and moves in this range. In the WR indicator, values above -20 can indicate the highest buying in the market, and values below -80 can indicate the highest selling in the market. The most common timeframe used to calculate Williams %R is 14 days. The TOBTC website helps you gain the necessary knowledge in digital currency and financial markets and increase your understanding of this field. You can also access more training and up-to-date news by following us on social networks.