What Is Williams Percent Range (Williams %R)?
Williams Percent Range, often called Williams %R, is a momentum oscillator that shows the position of the most recent closing price relative to the highest and lowest prices over a specific time period.
As an oscillator, Williams %R helps traders identify when a currency pair might be overbought or oversold.
Think of it as a more sensitive, though less commonly used, alternative to the Stochastic oscillator.
How Williams %R Works
- Oscillator Range: Williams %R fluctuates between 0 and -100.
- Overbought and Oversold Zones:
- Readings above -20 suggest the market is overbought (price near recent highs).
- Readings below -80 indicate the market is oversold (price near recent lows).
It’s important to understand that being overbought or oversold does not guarantee an imminent price reversal. Instead, these signals simply indicate that the price is close to the upper or lower boundary of its recent trading range.
Williams %R functions as a momentum indicator similar to RSI, measuring trend strength. While RSI uses the midpoint of 50 to gauge trend direction, Williams %R relies on its extremes (-20 and -80) to provide trading signals.
How to Trade Using Williams %R
Williams %R shares the same underlying formula as the Stochastic oscillator, but with one key difference:
- Stochastic measures the closing price’s location relative to the lowest price in the period.
- Williams %R measures it relative to the highest price in the period.
If you invert the Williams %R line, it aligns perfectly with Stochastic’s %K line. This explains why Williams %R uses a scale from 0 to -100, while Stochastic uses 0 to 100.
- A reading above -20 indicates the market is overbought.
- A reading below -80 indicates the market is oversold.
Again, these conditions highlight where the price stands within its recent range—not a guaranteed signal of reversal.
Using Williams %R to Gauge Trend Strength
Williams %R’s sensitivity to price swings makes it useful for spotting changes in momentum.
For example, on the daily EUR/USD chart, the pair attempted to push higher but failed to reach new highs in price or in the Williams %R readings. This divergence suggested the bullish momentum was weakening, and soon after, the price dropped roughly 200 pips within a week.
Later, the price regained momentum, pushing Williams %R above the oversold level. Even though EUR/USD continued rising with red candlesticks, the oscillator didn’t reach its previous low extremes, signaling potential loss of momentum again.
Eventually, the bulls regained strength and drove EUR/USD up by approximately 775 pips in under 30 days—a testament to Williams %R’s effectiveness as a momentum oscillator.
No wonder Williams %R is sometimes called “The Ultimate Oscillator” by its fans!