Saturday, February 13, 2016

Technical Indicator: A Case Study Using William %R

In his video starting at 7 min mark, Chris Ciovacco uses William %R to interpret the  overbought and oversold situation of NASDAQ index (i.e. $COMPQ).

In this article, we will learn more about the current stock market using the William %R indicator.[1,2]

Interpretation of William %R

Developed by Larry Williams, Williams %R is a momentum indicator that is the inverse of the Fast Stochastic Oscillator.  As with the Stochastic Oscillator, Williams %R reflects the level of the close relative to the high-low range over a given period of time (or look-back period).


As a bound oscillator, Williams %R makes it easy to identify overbought and oversold levels.

The oscillator ranges from 0 to -100. No matter how fast a security advances or declines, Williams %R will always fluctuate within this range. Traditional settings use -20 as the overbought threshold and -80 as the oversold threshold. These levels can be adjusted to suit analytical needs and security characteristics. Readings above -20 for the 14-day (or 14-week look-back period) Williams %R would indicate that the underlying security was trading near the top of its 14-day high-low range. Readings below -80 occur when a security is trading at the low end of its high-low range.


Using the NASDAQ index as an example, its weekly price and William %R chart looks like below for the week ending on 02/12/2016:

Based on William %R , NASDAQ is in the oversold territory and remains so in the last week.  Also the bounce on a William % perspective is tepid in the last couple of weeks (see the red circle).

When the price is in the oversold, it doesn't automatically translate to be bullish.  It becomes bullish only when it can clear the center line (i.e., -50) and stay in the upper half (between -20 and -50).

At this point, it is possible for the stock to launch a counter-trend rally.[3]  Similarly, it's possible for the stock finding a bottom and starting a new up trend from here.  However, based on other evidences, that possibility is low.[1] So, we need to wait until seeing other evidences to improve before we start to long the stock again.


  1. How Meaningful Was Friday's Stock Rally?
  2. William %R
  3. A Counter-Trend Rally? Knowing Your Risks

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