What Is Williams %R?
Williams %R is a momentum oscillator that measures where the current close falls within the period’s high-low range. It oscillates between 0 and -100 (inverted scale, which takes practice to read).
Key readings:
- 0 to -20: Overbought—price is near the period’s high
- -20 to -80: Neutral range
- -80 to -100: Oversold—price is near the period’s low
The indicator assumes that price tends to revert toward the middle of the range. Extreme readings (near 0 or near -100) suggest reversals are likely.
The Williams %R Formula
Williams %R = (Highest High - Close) / (Highest High - Lowest Low) × -100
Example on a 4-hour chart (14-period):
- Highest high over 14 periods: 1.2100
- Lowest low over 14 periods: 1.2000
- Current close: 1.2090
Williams %R = (1.2100 - 1.2090) / (1.2100 - 1.2000) × -100 = -10
A reading of -10 means price closed very close to the high of the 14-period range. This is overbought.
Trading With Williams %R
Overbought Signals (0 to -20)
When Williams %R is above -20 (near 0), price is near the period’s high. This suggests:
- Pullback potential: Price has rallied hard and is overextended
- Sell opportunities: Look for rejection candles or resistance to short
- Take-profit levels: Close long positions near these extremes
Example: EUR/USD rallies, Williams %R reaches -8. This is overbought territory. A reversal candle here would be a strong sell signal.
Oversold Signals (-80 to -100)
When Williams %R is below -80 (near -100), price is near the period’s low. This suggests:
- Bounce potential: Price has declined hard and is oversold
- Buy opportunities: Look for reversal candles or support to buy
- Take-profit levels: Close short positions near these extremes
Example: GBP/USD declines, Williams %R drops to -92. This is deeply oversold. A reversal candle here signals a bounce is likely.
Divergences
Divergences between price and Williams %R signal potential reversals.
Bullish divergence: Price makes a new low, but Williams %R makes a higher low (less oversold). The selling is losing steam. Expect a bounce.
Bearish divergence: Price makes a new high, but Williams %R makes a lower high (less overbought). The buying is losing steam. Expect a pullback.
Zero-Line Crosses
Some traders treat -50 as a zero line (middle of the range). Crossing above -50 signals building bullish momentum. Crossing below -50 signals building bearish momentum. These crossings can confirm trend changes.
Practical Trading Examples
Example 1: Overbought Rejection
- AUD/USD rallies 150 pips
- Williams %R reaches -5 (extremely overbought)
- A doji forms near resistance with this extreme reading
- Probability of pullback is high
- Short the doji, targeting the -50 level (middle of range)
Example 2: Oversold Bounce
- USD/JPY declines sharply, Williams %R at -95
- A hammer candle forms at support with this extreme reading
- Probability of bounce is high
- Buy the hammer, targeting the -50 level
- If Williams %R rises to -20, take profits (another overbought condition)
Example 3: Divergence Warning
- EUR/USD makes new high at 1.1150
- Williams %R only reaches -35, below its previous reading of -15 when price was at 1.1120
- Bearish divergence: the new high is weaker than the previous high
- Close long positions; expect pullback
Williams %R vs. Stochastic
Williams %R and Stochastic measure nearly identical things, but with different displays:
| Feature | Williams %R | Stochastic |
|---|---|---|
| Scale | 0 to -100 (inverted) | 0 to 100 |
| Smoothing | Raw (no smoothing) | Has K and D lines (smoothed) |
| Overbought | 0 to -20 | 80 to 100 |
| Oversold | -80 to -100 | 0 to 20 |
| Simplicity | Simpler | More complex |
Williams %R = 100 - Stochastic (mathematically equivalent, just inverted).
Choose based on preference. Williams %R is simpler; Stochastic is smoother. Both generate the same signals.
Combining Williams %R With Price Action
Williams %R is most powerful when combined with:
- Support/Resistance: Extreme readings at key levels are more significant
- Candle patterns: Overbought/oversold + pin bar or doji = strong reversal signal
- Trendlines: Williams %R breaking the -50 level can confirm trendline breaks
- Volume: Extreme readings on high volume are more meaningful
Limitations of Williams %R
- Lagging indicator: Williams %R reflects past price and range
- Choppy markets: In ranging (non-trending) markets, Williams %R oscillates constantly between extremes, generating false signals
- Needs confirmation: Don’t trade overbought/oversold alone; wait for price action confirmation
- Period dependent: A 14-period Williams %R looks different from a 5-period or 21-period. Choose your period carefully.
Using Williams %R in Your Trading Journal
When you trade based on Williams %R, log:
- What triggered the trade? (Overbought/oversold, divergence, extreme crossing)
- What was the Williams %R reading? (Extreme -95, moderate -75, etc.)
- What price action confirmed it? (Candle pattern, support/resistance, volume)
- Did the trade profit? (Track which setups are actually profitable)
Over time, you’ll identify which Williams %R-based setups work best for your strategy.
Key Takeaways
- Williams %R measures price position in the range: 0 to -100 scale (inverted)
- Overbought near 0, oversold near -100: These extremes suggest reversals
- Use it for mean reversion: Price tends to revert toward -50 (range midpoint)
- Divergences warn of reversals: Price new extreme but indicator doesn’t = momentum fading
- Combine with price action: Williams %R is strongest with support, resistance, and candle patterns
Williams %R is a simple, effective momentum tool. The inverted scale takes practice to read, but once you do, it’s straightforward: price near the high (0) is overbought; price near the low (-100) is oversold. These extremes signal reversals are likely.
