William %R uses a 14 day look back period and compares the close price of the stock with it’s high – low range to understand whether the stock is in oversold or overbought range. It is calculated using the formula:
%R = (Highest High – Close) / (Highest High – Lowest Low) * - 100
Lowest Low = lowest low for the look-back period
Highest High = highest high for the look-back period
Close = close price of the security for the day
William %R values range from 0 to -100. -50 is the center point and it is important to watch out for movement above and below this level. A crossover above -50 indicates that the price of the stock is trading in the upper half of the high – low range for the 14 day period. Conversely a move below -50 indicates that prices are trading in the bottom half of the given lookback period.
A reading between 0 to -20 shows overbought market conditions. Readings between -80 to -100 indicates oversold market conditions.