This is a momentum indicator developed by Larry Williams to capture the possible trend reversal points of a security. Most of the times, the indicator is used to measure the overstretched states of the prevailing trend, be it overbought or oversold. The formula is –
(Highest high in n periods – Last close)/(Highest high in n periods – Lowest low in n periods) * (-100)
The formula clearly shows the similarity to the Stochastic oscillator though the internal smoothing is missing in this case and the indicator is plotted upside down. The overbought state is marked by the band of 0 to (-20) and the oversold state by (-80) to (-100).