The Williams %R indicator or Williams Percentage Range is a well known momentum indicator that was created by Larry Williams. The aim of the indicator is to measure how close a cross currency is trading to its high over the past n number of days.
The calculation is as follows:
The easiest way to look at this equation is to break it down into its parts. If we first examine the numerator (Close today – high n days ago), it’s easy to see that the closer a cross currency to its high over the period the closer to zero the numerator will be. In the extreme case where the two are equal, the numerator will be zero, which will result in a corresponding %R of zero as well. If the close today is a long way from the high of the period the numerator will be a large negative number. For example, if the AUD/USD high for the period was 1.05 and closed today at 0.99, the numerator will be (0.99 – 1.05) = -0.06.
The denominator measures the size of the range over the sample. It can be thought of as a measure of volatility which is used to normalise the %R value. For example, if the AUD/USD traded in a very tight range over a period the difference between High n days and Low n days will be small. Conversely, if it is a period of high volatility then this number will be large. The denominator is always a positive number.
Since we always have a negative or zero numerator and a denominator that is always positive, the Williams % R will always be zero or negative, it can never be positive.
Although William’s uses a 10 day trading period for the value of n, a lot of traders prefer a 14 day period which is the default for our software. Low values of the indicator are a sign that a cross currency is oversold (generally -80 or below). Above -20 a cross currency is thought to be overbought.
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