Williams %R measures overbought and oversold levels on a scale from 0 to -100. Readings above -20 suggest overbought conditions, below -80 suggest oversold.
Williams %R, developed by Larry Williams, is a momentum oscillator that measures overbought and oversold levels on a scale from 0 to -100. It's mathematically similar to the Stochastic %K but inverted and plotted differently. Williams %R shows where the current close is relative to the highest high over a lookback period, typically 14 days.
The calculation:
Williams %R = ((Highest High - Current Close) / (Highest High - Lowest Low)) × -100
Example:
14-day High: $55 14-day Low: $45 Current Close: $52 %R = (($55 - $52) / ($55 - $45)) × -100 = -30
Interpreting Williams %R:
<ul>Why Williams %R matters:
- Momentum measure: Shows position within recent range
- Extreme readings: Identifies potential reversal zones
- Trend confirmation: Confirms price momentum
- Simplicity: Easy to interpret scale
Trading signals:
- Oversold exit: Buy when %R rises above -80 from oversold
- Overbought exit: Sell when %R falls below -20 from overbought
- Momentum thrust: Strong moves to 0 or -100 indicate momentum
Williams %R vs. Stochastic:
- Same concept: Both measure close vs. range
- Inverted scale: %R uses 0 to -100; Stochastic uses 0 to 100
- No smoothing: %R is unsmoothed; similar to Fast Stochastic %K
Divergence analysis:
- Bullish divergence: Price lower low, %R higher low
- Bearish divergence: Price higher high, %R lower high
Important considerations:
- Trend context: In strong trends, %R can stay extreme for extended periods
- False signals: Extreme readings don't guarantee reversals
- Confirmation needed: Use with other indicators or price patterns
Williams %R provides a straightforward momentum reading. Its unsmoothed nature makes it responsive but potentially noisy, best used with other technical tools for confirmation.