Williams %R – What It Is & How to Trade with It

Williams %R – What It Is & How to Trade with It

What is Williams %R?

The Williams %R (Williams Percent Range) is a momentum-based oscillator developed by Larry Williams to measure how close the current price is to the highest high over a specific period. It ranges from 0 to -100, identifying overbought and oversold conditions.

Williams %R is calculated using the following formula:
%R = [(Highest High – Current Close) / (Highest High – Lowest Low)] × -100

Where:

• Current Close = Most recent closing price.
• Lowest Low = Lowest price over the chosen period.
• Highest High = Highest price over the chosen period.

Key Features of Williams %R

• Identifies overbought (above -20) and oversold (below -80) conditions.
• Generates buy and sell signals based on momentum shifts.
• Useful for detecting trend reversals and momentum exhaustion.

How to Use Williams %R in Forex Trading

1. Overbought & Oversold Strategy

Williams %R helps traders spot potential reversals:

• Buy Signal: When Williams %R drops below -80 (oversold) and moves back up.
• Sell Signal: When Williams %R rises above -20 (overbought) and moves back down.

Trading Tip: Works best in ranging markets, where price oscillates between support and resistance.

2. Williams %R Divergence Strategy

Divergence between price and Williams %R can signal trend reversals:

• Bullish Divergence: Price forms a lower low, but Williams %R forms a higher low (buy signal).
• Bearish Divergence: Price forms a higher high, but Williams %R forms a lower high (sell signal).

3. Williams %R with Moving Averages

Pairing Williams %R with a moving average (e.g., 50 EMA) can help confirm trend direction:

• Buy when: Williams %R crosses above -80 & price is above the 50 EMA.
• Sell when: Williams %R crosses below -20 & price is below the 50 EMA.

Pros and Cons of Using Williams %R

✅ Pros:

• Provides early entry and exit signals.
• Effective in ranging markets.
• Useful for identifying trend reversals and momentum shifts.

❌ Cons:

• Can give false signals in strong trends.
• Requires additional confirmation from other indicators.

Final Thoughts

The Williams %R is a powerful momentum indicator that helps traders identify overbought/oversold conditions, trend reversals, and momentum shifts. When combined with other technical tools, Williams %R enhances trade accuracy and decision-making.