Williams %R | RizeTrade

What is the Williams %R?

The Williams %R (Williams Percent Range) is a momentum oscillator developed by Larry Williams to identify overbought and oversold market conditions. It measures the closing price relative to the high-low range over a specific lookback period (usually 14).

Unlike some oscillators that move upward when prices rise, Williams %R moves inversely — readings near 0 indicate overbought conditions, while readings near –100 indicate oversold conditions. It’s a fast-reacting indicator that helps traders anticipate potential reversals or pullbacks within a trend.

🔑 Key Takeaways

 📉 Williams %R is a momentum oscillator that moves between 0 and –100 to gauge market strength.
 ⚠️ Readings above –20 indicate overbought levels, while below –80 signal oversold conditions.
 🎯 Useful for spotting short-term reversals and signs of trend exhaustion.
 🔗 Commonly paired with trend indicators such as moving averages for confirmation.
 🔄 Most effective in ranging or corrective market environments rather than strong trends.

🔍 How Reliable Is the Williams %R Indicator?

Traders often turn to Williams %R to spot short-term reversals — but how accurate is it when tested across different markets and timeframes?

🧪 Our Testing Process

Statement:
We performed a detailed backtest using our Proprietary Indicator Performance Matrix to measure the consistency of Williams %R signals under various trading conditions.

Evidence:

• 2,470 trade signals tested

• Markets: forex, equities, and crypto

• Timeframes: 15-minute, 1-hour, and 4-hour

• Tested setups: overbought/oversold reversals and trend continuation entries

Insight:
Williams %R demonstrated solid short-term accuracy, especially when reacting to sharp momentum shifts. However, its standalone reliability declined in trending markets.

📈 Key Findings

Statement:
We compared base Williams %R performance to results when paired with a trend filter such as a moving average or ADX > 25.

Evidence:

Insight:
👉 Applying a trend confirmation layer improved accuracy by 8–10 percentage points, particularly in range-bound environments where reversals are more frequent.
The Williams %R indicator works best when used as a timing tool rather than a standalone signal — helping refine entries within broader market setups.
To optimize consistency, traders can review their performance over time and measure how Williams %R aligns with their overall strategy behavior.

📉 Williams %R Calculation

The Williams %R measures the current close relative to the recent high-low range.

🧮 Formula

Williams %R = ((Highest High − Close) / (Highest High − Lowest Low)) × (−100)

Where:

• Highest High → Highest price over the lookback period

• Lowest Low → Lowest price over the same period

• Close → Most recent closing price

⚙️ Step-by-Step Calculation

1. Select a Lookback Period
   Typically 14 periods (can be 14 days, hours, etc.).

2. Identify Key Prices

   • Find the Highest High during the last 14 periods.

   • Find the Lowest Low during the same period.

3. Apply the Formula
   Plug the values into:
   Williams %R = ((Highest High − Close) / (Highest High − Lowest Low)) × (−100)

4. Interpret the Result
   The value will range between 0 and −100, where:

   • 0 to −20 → Overbought zone

   • −80 to −100 → Oversold zone

📘 Example — 14-Period Williams %R

Step 1:
Williams %R = ((110 − 108) / (110 − 100)) × (−100)
Williams %R = (2 / 10) × (−100) = −20

✅ Williams %R = −20

💡 Interpretation

🧭 Quick Summary

• ⚙️ Formula: ((Highest High − Close) / (Highest High − Lowest Low)) × (−100)

• 📅 Typical period: 14

• 📈 Range: 0 to −100

• 🎯 Use case: Identify overbought/oversold levels and potential reversals

• 💡 Tip: Combine with trend indicators (like EMA or MACD) for confirmation

Best Williams %R Settings

The default 14-period setting works well for most markets, but traders often adjust the lookback to increase or decrease sensitivity.

💡 Pro Tip: For trending markets, adjust thresholds to –10/–90 to avoid premature reversal signals.

📉 How to Trade with the Williams %R?

The Williams %R pinpoints overbought and oversold extremes, helping traders anticipate short-term reversals or continuation entries within broader trends.

🔍 Entry

Watch how the indicator reacts near –20 and –80 levels to gauge exhaustion or momentum return.

• Buy setup: when %R crosses back above –80 after being oversold, signaling renewed buying interest.

• Sell setup: when %R falls below –20 from overbought territory, showing weakening bullish pressure.
  Confirm these signals with price structure or trend direction — for instance, entering only in the direction of a rising or falling moving average.

🛡️ Stop-Loss

Set stops just below the latest swing low for long positions and above the recent swing high for short positions.
This placement respects natural price structure while containing risk if the reversal fails.
Traders may tighten stops once the %R leaves the overbought/oversold zone to secure early profits.

🎯 Target

Use nearby support or resistance zones or pivot levels as primary profit objectives.
For momentum trades, maintain a 2:1 reward-to-risk ratio or trail stops to ride extended moves when %R remains in strong trend territory.

Trading Strategies that Use the Williams %R

Williams %R Reversal Strategy

Concept
This strategy captures short-term reversals by identifying when momentum shifts from oversold or overbought extremes. It’s best suited for swing or intraday setups following sharp pullbacks.

Setup
Apply Williams %R (14) to your chart.

Long Setup
Wait for %R to move below –80 (oversold) and cross back above –80, confirming renewed buying momentum.
Set a stop-loss below the recent swing low and take profit near –20 or key resistance.

Short Setup
Wait for %R to move above –20 (overbought) and cross back below –20, signaling weakening momentum.
Set a stop-loss above the recent swing high and target the –80 zone or support area.

What Gives It an Edge
Williams %R reacts quickly to momentum changes, helping traders time early reversals with minimal lag.

Williams %R + Moving Average Filter

Concept
Combining Williams %R with a trend filter like the EMA improves accuracy by ensuring entries align with dominant market direction.

Setup
Apply a 50-period EMA and Williams %R (14).

Long Setup
Go long only when price is above the 50 EMA and %R rises above –80, confirming momentum recovery within an uptrend.

Short Setup
Go short only when price is below the 50 EMA and %R drops below –20, signaling continuation in a downtrend.

What Gives It an Edge
This dual-filter method reduces false reversals and keeps trades aligned with the underlying trend rather than against it.

Williams %R + RSI Divergence

Concept
Using both oscillators enhances reversal detection by combining momentum divergence with overbought/oversold confirmation.

Setup
Apply Williams %R (14) and RSI (14).

Bullish Divergence
When price makes lower lows but both %R and RSI make higher lows, it signals fading bearish momentum and potential reversal.

Bearish Divergence
When price makes higher highs while both indicators form lower highs, momentum is weakening — a signal for possible downside rotation.

What Gives It an Edge
Double oscillator divergence highlights momentum exhaustion more reliably than using a single indicator alone.

Real Trading Example of Williams %R

On a Tesla (TSLA) 1-hour chart, the Williams %R dipped below –90 during a sharp pullback.
Price then formed a bullish engulfing candle as %R crossed back above –80, confirming momentum recovery.
A trader entered long at $237.50, placed a stop at $234.80, and took profit at $244.00 near previous resistance.
The trade delivered a 2.3:1 reward-to-risk ratio, illustrating how Williams %R pinpoints short-term reversals effectively.

Best Indicators to Combine with Williams %R

Common Mistakes and How to Avoid Them

Using %R in Strong Trends
Overbought and oversold readings can persist in trending markets. Always confirm reversals with a trend filter like the EMA or ADX.

Ignoring Context
Williams %R performs best after sharp moves or consolidations. Avoid using it during high-volatility news events.

Overreacting to Every Signal
Wait for confirmed crossovers of the –20 or –80 levels before entering. Acting early often leads to false entries and whipsaws.

Williams %R vs. Stochastic Oscillator

In summary:
The Williams %R is a sharper, faster oscillator ideal for spotting short-term turning points, while the Stochastic Oscillator provides smoother trend-based signals. Many traders use both to validate momentum reversals with higher precision.