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Using Williams %R to determine oversold or overbought situation
Decision making in regard to when to buy and when to sell is not a simple task for a stock trader or investor.
This is because there are several parameters we need to observe or track at the same time so as to take an informed decision.
Earlier we saw how Using SuperTrend and Parabolic SAR for trading and investing helps us in identifying stock trend.
Now, let us see one more parameter - Williams %R
Williams %R, or just %R is a technical analysis oscillator.
It shows the current closing price in relation to the high and low of the past N days (for a given N).
In general, the value of N is taken as 14. This means, Williams %R will show the current closing price in relation to the high and low of the past 14 days.
It was developed by a publisher and promoter of trading materials, Larry Williams.
Its purpose is to tell whether a stock or commodity market is trading near the high or the low, or somewhere in between, of its recent trading range.
The oscillator is on a negative scale, from −100 (lowest) up to 0 (highest)
Inference / Decision making
A reading between 0 and -20 would point to an overbought situation (time to sell).
A reading from -80 to -100 would signal an oversold situation (time to buy).