The Williams %R is a momentum oscillator by Larry Williams that identifies overbought and oversold conditions. It ranges from 0 to -100, with above -20 signaling overbought (sell) and below -80 signaling oversold (buy). Unlike RSI, it is inverted, meaning values near 0 indicate strong buying and values near -100 indicate strong selling. It helps in spotting momentum shifts, reversals, and trend strength in various market conditions.
Significance
- Identifies overbought and oversold conditions for potential reversals.
- Measures momentum strength by analyzing where price closes within a set range.
- Detects trend reversals when Williams %R moves above -20 or below -80.
- Effective for short-term trading, especially in volatile markets.
- Works best with other indicators like Moving Averages and MACD for confirmation.
Indicator Components & Values
- Williams %R Line → Moves between 0 and -100, showing momentum shifts.
- Period Range → Commonly 14 periods, but can be adjusted for sensitivity.
- Overbought & Oversold Levels →
- Above -20 → Overbought, potential selling opportunity.
- Below -80 → Oversold, potential buying opportunity.
- Crossovers →
- Crossing above -20 → Signals strong buying, possible reversal down.
- Crossing below -80 → Signals strong selling, possible reversal up.
Trading Strategy
- Overbought & Oversold Strategy → Buy near -80, sell near -20.
- Trend Confirmation → Follow the trend if Williams %R stays between -50 and -80 (downtrend) or -50 and -20 (uptrend).
- Williams %R + Moving Average → Trade in the trend direction when confirmed by a 50-MA or 200-MA.
- Divergence Strategy → Buy if price makes a lower low but Williams %R makes a higher low (bullish divergence), and sell on the opposite.
- Williams %R + MACD → Confirm signals with MACD crossovers for better accuracy.
