Williams R

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:

• %R = 0 to -20: Overbought; price near 14-day high
• %R = -20 to -50: Bullish zone; momentum positive
• %R = -50: Neutral; price at midpoint of range
• %R = -50 to -80: Bearish zone; momentum negative
• %R = -80 to -100: Oversold; price near 14-day low

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.