What is Williams %R ?

What are Williams %R?

Also known as the Williams Percent Range, Williams %R is a kind of momentum indicator that moves between 0 and -100. It typically measures overbought and oversold levels, so traders often use this indicator to find entry and exit points in the market. Williams %R is pretty much similar to the Stochastic oscillator and is used in the same way, just that it is slightly less popular among traders as it is a more sensitive version of the Stochastic.

The Williams %R was developed by Larry Williams and as a momentum indicator, it also feels like RSI in the sense that it measures the strength of a current trend. But while RSI uses its midpoint of 50 to determine trend strength, Williams %R is used by traders at extreme levels (-20 and -80) for cues. The indicator compares closing prices to the high-low range over a specific period, typically 14 days or periods.

A little about the formula

Highest High = Highest price in the lookback period, typically 14 days 

Close = Most recent closing price

Lowest Low = Lowest price in the lookback period, typically 14 days 

The formula isn’t complex at all! Simply record the high and low for each period over 14 periods. In the final period, take note of the current price, the highest and the lowest price to fill in the formula as shown above. In the 15th period we do the same thing, but only the highest and lowest prices for the last 14 periods  (excluding the last 15). Compute the new Williams %R value. As each period ends, compute the new Williams %R, only using the last 14 periods of data. 

Okay, so when I put it this way, it does sound a whole lot more complicated. But for those who didn’t really get it, fret not! Once again, trading platforms will provide the indicator on your chart with a simple click on the mouse! Voila, there you have it. So the more important thing is, how do we use this thing?

What really happens with the Williams %R indicator?

Actually, the Williams %R uses the same formula as the Stochastic to pinpoint the relative location of a currency pair! In fact, the main distinction is that the Williams %R utilises the highest price to determine the closing price’s position, whereas the Stochastic uses the lowest price to show you a relative location. So if you invert the Williams %R line, you will find that it has the exact same line as the Stochastic’s %K line! This is why Williams %R uses the 0 to -100 scale. 

The price is overbought or close to the peak of its most recent price range when the indicator is between -20 and zero. This suggests a potential bearish correction. Conversely, the price is oversold or distant from its previous range high when the indicator is between -80 and -100, suggesting a potential bullish correction. 

However, it is essential to note that when engaging in oversold or overbought signals when using the Williams %R indicator, you do need some additional confirmation before entering into a trade. This is mostly because a market can remain overbought or oversold for extended periods of time. So, as a prudent trader, it would be advisable to use this indicator together with some others to increase your probability of executing a successful trade.

How do we actually use this?

During an uptrend, you can watch for the indicator to move below -80. When the price starts moving up and the indicator moves back above -80, this could signal that the uptrend in price is starting again. The same concept can be used to find short trades in a downtrend too! When the indicator is above -20, look out for the price when it starts falling along, with the Williams %R moving back below -20 to signal a possible continuation of the downtrend. The basics of this indicator is that simple!

You can also look out for momentum failures. Say during a strong trend, the price often reaches -20 and above. If the indicator starts to fall, and it can’t get back to above -20 before falling again, this signals that the upward price momentum is problematic and a bigger price decline could follow suit. In the same vein, during a downtrend when the readings of -80 or lower are often reached, keep a lookout. When the indicator can no longer reach those low levels before moving higher, it represents a clear indication that the price is likely to head higher.

Some caveats to note!

Williams %R’s overbought and oversold values do not necessarily signal a reversal all the time. Since a strong uptrend should frequently be pushing to or over previous highs, overbought readings actually aids the confirmation of an uptrend (what the indicator is calculating).

The indicator may also be too responsive at times, and this implies that it could possibly give many false signals. For instance, the indicator may be in the oversold zone and begin to rise, but the price does not. This is a result of the indicator only considering the last 14 sessions. Even though the price hasn’t changed, with time, the present price’s position in relation to the highs and lows of the lookback period changes.

So if you are using Williams %R as an indicator, remember to use it in combination with a bunch of other indicators to ensure your chances of a winning trade are significantly higher. Omada’s verified signal providers use an array of indicators during trading to increase the odds of having successful trades.

Through copy trading, you will be able to catch a few tricks of the trade by observing the trading statistics, and comparing it retrospectively with the charts! Omada is a great platform for keen learners to pick up trading from professionals out there! So come on, give us a go and have the time of your life learning trading!