What It Is
Williams %R is a momentum oscillator developed by Larry Williams that measures the current closing price relative to the highest high over a lookback period (default 14). It ranges from -100 to 0, with readings from -20 to 0 indicating overbought and -80 to -100 indicating oversold.
Key insight: Williams %R is mathematically the inverse of the Fast Stochastic Oscillator, but plotted on a negative scale. The inverted scale can be confusing at first — 0 means the close is at the highest high (overbought), and -100 means it's at the lowest low (oversold).
Despite its simplicity, Williams %R is highly responsive to price changes and often signals reversals before other oscillators. Its sensitivity makes it useful for short-term trading but prone to whipsaws in choppy markets.
Trading Application
Williams %R works best as a timing tool within an established trend. In an uptrend, use oversold readings (-80 to -100) as pullback buy zones. In a downtrend, use overbought readings (-20 to 0) as rally sell zones.
Combine %R with a trend indicator like the 50 EMA. Only trade %R signals in the direction of the larger trend — buy oversold above the 50 EMA, sell overbought below the 50 EMA. This filter eliminates most false signals.
This indicator works best when combined with price action analysis. Never trade indicators alone - always confirm with the chart.
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Compare this reference with related structures and readings before applying it to a live chart.