Momentum · Indicator
Williams %R shows where the close sits in the recent high-low range on an inverted scale from 0 down to -100.
Overview
Larry Williams' %R is a momentum oscillator with an inverted scale running from 0 to -100. Readings near 0 mean the close is at the top of the recent range and are called overbought; readings near -100 mean the close is at the bottom and are called oversold. It is similar to the Stochastic Oscillator but with a different formula, measuring distance from the high rather than distance from the low.
That difference is essentially cosmetic: %R and the raw stochastic %K are mirror images, and %R equals %K minus 100. The practical distinctions are that %R is conventionally plotted unsmoothed while most traders use a smoothed stochastic, and that %R has no signal line, so it produces no crossover signals of its own.
The inverted scale takes some getting used to but has a logic: it expresses how far below the recent high the market has closed, so a reading of -20 means the close was twenty per cent of the range below the top. The conventional thresholds are -20 for overbought and -80 for oversold.
How it is calculated
The highest high and lowest low over the lookback define the range. The distance from the highest high down to the current close is expressed as a percentage of that range and negated, giving 0 when the close equals the period high and -100 when it equals the period low.
No smoothing is applied, so the plotted line is the raw value and is correspondingly jumpy. Because the range boundaries only change when a new extreme is set or an old one leaves the window, %R can move sharply when either happens.
Highest = highest high over the last N bars Lowest = lowest low over the last N bars %R = -100 * (Highest - close) / (Highest - Lowest)
Inputs
How to read it
Read the value as position within the range rather than as a verdict on price. A reading of -5 says the market closed very near the top of everything it has traded over the lookback, which in a trend is a sign of strength. Treating that automatically as a sell is the most common misuse of the indicator.
The oscillator saturates easily. In a sustained uptrend it will pin near 0 for long stretches, and each new high resets the range so that further advances keep it there. Traders working with trends therefore watch for the line failing to reach the extreme on a subsequent rally rather than for the extreme itself.
Because there is no signal line, the usual approach is to wait for the line to leave the extreme zone and cross back through the threshold. That converts a state reading into an event, at the cost of acting later.
Signals to look for
The line crossing back above -80 after being oversold, or back below -20 after being overbought, is the standard signal. Waiting for the cross rather than the touch filters out many readings that occur mid-trend.
Price making a new high while %R makes a less extreme high indicates closes are landing further from the top of the range than before, describing an advance that is losing force.
In an established uptrend, a rally that cannot push %R back near 0 shows closes are no longer reaching the strong end of the range, which is read as deterioration in trend quality.
Limitations
Frequently asked questions
Williams %R shows where the close sits in the recent high-low range on an inverted scale from 0 down to -100.
Read the value as position within the range rather than as a verdict on price. A reading of -5 says the market closed very near the top of everything it has traded over the lookback, which in a trend is a sign of strength. Treating that automatically as a sell is the most common misuse of the indicator.
Exit from the extreme zone: The line crossing back above -80 after being oversold, or back below -20 after being overbought, is the standard signal. Waiting for the cross rather than the touch filters out many readings that occur mid-trend.
%R pins at the extremes during trends and stays there. Trading each overbought reading as a reversal means fighting the trend continuously for as long as it lasts.
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