Williams %R Oscillator
Bullish: %R rises back above -80 and continues to cross above the -50 line within 14 days. We identify an event at the -50 line crossover.
Bearish: %R falls back below -20 and continues to cross below the -50 line within 14 days. We identify an event at the -50 line crossover.
The %R oscillator is very similar to the stochastic oscillator. However, the %R oscillator is expressed in negative values. For simplicity, many technical analysts would suggest that you ignore the negative symbols altogether. The goal of the %R oscillator is to detect overbought or oversold conditions. According to John J. Murphy, the %R oscillator measures “the latest close in relation to its price range over a given number of days”. The specific calculation for the %R oscillator is freely available on the web and other resources. Recognia uses a 14-day period to detect events, which is the typical period to monitor.
When the %R line nears the -80% line an oversold condition may occur, causing a price reversal. Likewise, when the %R line nears the -20% line an overbought condition may occur. Some technical analysts prefer to use the -75% and -25% lines to indicate oversold/overbought conditions.
It should be pointed out that an event at the -80% or -20% lines does not necessitate a price reversal. In fact, the price can continue to rise or fall.
Divergence will give you a better sense of the likelihood of a price reversal. Divergence occurs when the price and oscillator trend lines move in different directions. When a divergence occurs, a price reversal may follow.