Williams %R

Williams %R

Definition

Williams %R (Williams percent range) is a momentum oscillator that shows where the current closing price sits relative to the highest high and lowest low over a chosen lookback period (commonly 14 periods). The indicator ranges from 0 to -100 and is used to identify overbought and oversold conditions and potential momentum shifts.

Key points
* Values above -20 are commonly considered overbought.
* Values below -80 are commonly considered oversold.
* Overbought/oversold readings do not guarantee a price reversal — they signal proximity to recent highs or lows.

Formula

Typical formula (for an N-period lookback, usually N = 14):
Williams %R = (Highest HighN − Close) / (Highest HighN − Lowest LowN) × -100

Where:
* Highest HighN = highest price over the past N periods
* Lowest LowN = lowest price over the past N periods
* Close = most recent closing price

This produces a value between 0 (price at the highest high) and -100 (price at the lowest low).

How to calculate

1. Choose the lookback period (standard is 14).
2. For each period, record the high, low, and close.
3. For the current period, find the Highest High and Lowest Low over the last N periods.
4. Plug values into the formula and compute the %R.
5. Update each period using only the most recent N periods.

How traders interpret %R

• Overbought: reading above -20 — price is near recent highs; may indicate limited upside or a strong uptrend (not necessarily an immediate sell).
• Oversold: reading below -80 — price is near recent lows; may indicate limited downside or a strong downtrend (not necessarily an immediate buy).
• Crossovers:
• A buy signal is often taken when %R crosses up above -80 (exiting oversold).
• A sell signal is often taken when %R crosses down below -20 (exiting overbought).
• Divergence: if price makes a new high but %R fails to make a corresponding high (or price makes a new low but %R does not), this can signal weakening momentum and a possible reversal.

Comparison with the fast stochastic oscillator

• Scale and direction: Williams %R runs from 0 to -100; the fast stochastic oscillator typically runs 0 to 100. Conceptually both compare close to a recent range.
• Lines: Williams %R is a single line; the fast stochastic commonly uses %K and a smoothed %D (signal) line, enabling crossover signals.
• Sensitivity: Williams %R tends to be more reactive and may give earlier signals but also more false signals in choppy markets. The stochastic’s smoothing can reduce noise.
• Usage: Both can be used for overbought/oversold and divergence analysis; stochastic crossovers provide additional signal confirmation.

Limitations

• False signals: high sensitivity can produce many whipsaws in sideways or noisy markets.
• Not a standalone tool: overbought or oversold readings do not imply an immediate reversal; strong trends can keep an asset in overbought/oversold territory for extended periods.
• Lookback dependence: results vary with the chosen period; shorter lookbacks increase sensitivity, longer ones smoother the indicator.

How to make Williams %R more robust

Combine %R with complementary indicators and methods for confirmation:
* RSI — smoother momentum confirmation.
* MACD — trend and reversal confirmation.
* Bollinger Bands — volatility context; confirm breakouts or reversion signals.
* ADX — check trend strength and filter signals (avoid countertrend trades when ADX indicates a strong trend).
* Multi-timeframe analysis and backtesting — validate signals across timeframes and historical data.
* Adjust lookback length or apply modest smoothing if too many false signals occur.

When to use Williams %R

• Rangebound markets — effective at spotting reversals near channel extremes.
• Short-term trading — useful for day trading and swing trading to time entries and exits.
• Momentum checks — quick read on whether price is pushing toward recent highs or lows.

Conclusion

Williams %R is a simple, fast momentum oscillator useful for identifying overbought/oversold conditions and spotting potential reversals or momentum shifts. Its responsiveness is an advantage for short-term trading but also a source of false signals. For more reliable decisions, use %R alongside trend and volatility indicators, perform backtesting, and consider multiple timeframes.