Williams %R

The formula is straightforward: %R = (Highest High over N periods - Current Close) / (Highest High over N periods - Lowest Low over N periods) x -100. The result always falls between 0 and -100. The negative scale is what distinguishes %R from the stochastic %K, which uses an identical numerator and denominator but ranges from 0 to 100. A reading of 0 means today's close is at the exact highest high of the lookback period — maximum price strength. A reading of -100 means today's close is at the exact lowest low — maximum weakness. The 14-period setting is the standard, matching RSI's default, but shorter periods (7–10) are common for intraday trading where faster responsiveness is needed.

Four primary signal types emerge from Williams %R. First, standard overbought/oversold: %R above -20 is overbought territory; below -80 is oversold. These readings alone are not trade signals — in strong trends, price can remain overbought or oversold for extended periods. Second, exit from extreme zone: a %R reading that crosses back from above -20 to below -20 (leaving overbought) is a bearish momentum signal; a cross from below -80 to above -80 (leaving oversold) is bullish. Third, failure swings: if %R fails to reach -80 during a pullback in an uptrend, it signals that bulls are so strong the indicator cannot even reach oversold — a powerful continuation signal. Fourth, divergence: price makes a new high while %R makes a lower high, indicating diminishing momentum and a potential reversal ahead.

All three are momentum oscillators measuring recent price position within a lookback range, but with meaningful differences. RSI measures the ratio of average gains to average losses — it reflects the speed and magnitude of price changes rather than raw position within a range. Williams %R is essentially a raw position measure: where is the close within the high-low range? It is more sensitive to recent price extremes and responds faster to momentum changes. The stochastic %K is algebraically identical to %R inverted (0 to 100 scale, same formula rearranged), but the Slow Stochastic adds two smoothing steps that make it significantly less responsive. %R's advantage is its lack of smoothing — it responds immediately to new extremes, making it better for short-term momentum confirmation.

In strong uptrends, Williams %R often stays in the -20 to 0 range (overbought) for extended periods. Trying to short the overbought reading in a strong trend is a losing strategy. Instead, trend traders use %R to time entries during pullbacks: wait for %R to pull back to the -50 to -80 zone (neutral to mild oversold), then look for a turn back toward -20 as a momentum resumption signal. This gives a better entry price within the trend while using %R as a timing tool rather than a contrarian reversal signal. The same logic applies in downtrends — %R oscillates in the -80 to -100 zone, and pullbacks to -20 to -50 followed by a return below -80 provide short entries.