Williams %R Indicator - 3 Trading Strategies and Formula
I feel the like I am on an oscillator craze lately, but if it feels right, why crusade it?
The Williams %R indicator is pronounced Williams Percent R. The indicator is the creation of illustrious technical psychoanalyst and charting enthusiast Larry R. Williams. [1]
The Williams %R is a momentum indicator, which gauges if a stock is overbought or oversold.
Therein carry, we will discuss how to count on the indicator and 3 trading strategies you can test in the securities industry.
How to Depend the Williams %R
I am the first to say not to worry about memory an equating by heart. Still, I do trust it is important to understand its underlying components.
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Roger Williams %R Convention [2]
(Highest Highn – Closestream period) ÷ (Highest Topn – Lowest Lown) x -100
Eastern Samoa you can find preceding, the indicant is completely about the high, conclusion and low prices. Other way of thinking about the indicator at a high-raze is that its primary focus is to identify the excitability and momentum for a security department.
The n in the formula is the total of periods or candlesticks in the par.
Although Larry Williams initially calculated the index using 10-periods, your charting package will likely use 14 periods. The number of periods is configurable aside you; yet, it's a slippery slope once you start mucking around with the settings.
Roger Williams%R Chart Example
Williams %R Readings
The oscillator has a straddle of -100 to 0. Readings below -80 represent oversold territory and readings above -20 represent overbought.
Now, this does not mean you should buy readings below -80 and sell readings above -20.
During a strong uptrend, a stock can hover around -20. Conversely, in a strong downtrend, a stock can stay in the -80 territory.
Relationship between Williams %R and the Stochastic Oscillator
No discussion nigh the index would be complete if you do non compare the indicator to the Stochastic Oscillator.
Stochastic Oscillator
While there are deuce variants of the Random Oscillator, the rul below is for the Fast Stochastic Oscillator [3].
As it has two plotted lines, %K and %D, the formula to direct these two data points are as follows:
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%K = (CloseTopical Period – Last-place Contrabassn) ÷ (Highest Highn – Last Lown) * 100
%D = 3-Day Simple Moving Common (SMA) of %K
As you can see, the Hiram King Williams %R is the inverse of the Fast Stochastic Oscillator.
The Williams %R indicator represents the level of the closing price to the highest price for "x" number of periods. By dividing line, the Fast Stochastic Oscillator represents the level of the end damage to the lowest price for "x" periods.
Different Ranges
The Williams %R multiplies the formula by -100 whereas the Stochastic Oscillator multiplies the formula past 100.
Comparing Williams %R and (smart) Random Oscillator
As you can see the movement is essentially the equivalent. The one major deviation is the stochastic oscillator gives you a trigger billet which you can use to execute entries and exits.
Triplet Trading Strategies
Scheme #1 – Cross of -50
Instead of using the index for simply identifying overbought and oversold market conditions, you ass develop a trading plan around the -50 line of work cross.
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Object lesson of Attractive a Short Position with Hank Williams %R Momentum Scheme
Example of -50 Line Cross Strategy
After decent overbought and oversold, if the index crosses the -50 line, it generally indicates a shift in momentum. At this full point, you can start to look back for opportunities to swap the stock counselling of the crown of thorns.
In the above chart example, the %R of MSFT was overbought. The stock price then began to decline and the %R crossed on a lower floor the -50 melodic phras.
Once crossing below -50, you then wait for the bar to about place a sell order.
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As you can see, the ginmill that pushed the indicant reading below -50 was a bearish outside (BEOB). If you simply set a sell stop-loss order beneath the low of this bar, you would have entered the market when the pessimistic momentum was at its highest. Hence, you could hold gotten away with placing a little stop loss, which would, in turn, increase your risk to reward ratio connected this particular trade.
You can use this Saami scheme to take a drawn-out put down when the %R crosses above -50 from later beingness oversold for some stop of time.
Strategy #2 – Divergence Trading Strategy
Trading Williams %R Divergence
If you are familiar with divergence, you basically want to see points areas where price and the indicator are in conflict.
Williams %R divergences are very herculean you should pay attention to these when it happens. In the above chart, you crapper see AMGN pitcher-shaped a clear downtrend; however, the Bernanrd Arthur Owen Williams %R made a higher higher.
This kind of disagreement suggests a trend continuation. As you can see, after forming a pessimistic price litigate cake, the AMGN price short resumed the downtrend and you could have easily placed a sell stop below the pessimistic bar to capture this short swing.
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Scheme #3 – Ride the Williams
Have got you ever detected of the strategy where you ride Bollinger Bands? Well, you potty do the same thing with the Sir Bernanrd Williams %R.
Hither is the setup and you will love its simplicity.
First look for the indicator to break -20 to the upside, so the blending kicks in. Then wait to control if the indicator can stay below -30 for 10 periods in a row.
If the stock is able to she this plane of enduringness you can so use the prime dip as a purchasing chance to bestrid the primary trend.
Ride the Thomas Lanier Williams
As you buns see in the above graph, once you are in the position, you can past ride the stock until the stochastics breaks -30 on the way perfect.
The hardest part of this scheme is non pull the trigger as well soon.
Termination
Since Williams %R lines are similar to the Fixed Random Oscillator, you can simply use the Random Oscillator. But, remember that the intended trading scheme of the Williams %R is altogether disparate compared to the Stochastic Oscillator.
Like other momentum indicators, it has its flaws, A it can remain extremely overbought during an uptrend and vice-versa [4]. However, A we showed here, you should not use the Hank Williams %R to blindly take a position in the food market supported its overbought and oversold readings.
Instead, if you trade smartly by combining Mary Leontyne Pric action and use the indicator to corroborate the momentum in the market, your chance of ending up with a useful trade would increase tremendously.
How Ass Tradingsim Assistance?
If you are interested in the Williams %R, you privy practice trading with the indicator against real-tick data within Tradingsim. Eldest, see if the indicator works for your trading stylus before placing real trades in the market.
Foreign References
- Larry R. Williams. Wikipedia
- Williams, Larry. Williams Percent Indicator (%R). williamspercentr.com
- Stochastic Fast (StochF). tradingtechnologies.com
- Trading with Stochastics. fidelity.com
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Source: https://tradingsim.com/blog/williams-percent-r/
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