Williams Percent Range (Williams's %R): The Ultimate Guide

Understanding, interpreting, and analyzing price charts and graphs are essential to becoming a successful trader. The utilization of technical indicators is effective in helping decipher how the price charts and graphs function. 

The use of technical indicators can help understand the ongoing changes in a security's price in a few known patterns. This allows you to predict the future price development of that security. For example, one technical indicator used by traders when analyzing the price of an instrument is the Williams %R or Williams Percentage Range.

Williams %R is a momentum oscillator that scales from 0 to -100 and indicates whether an instrument is overbought or oversold. Of course, overbought and oversold conditions do not necessarily mean a reversal is imminent. But Williams %R provides traders with valuable information and confirming signals when deciding whether to open or close a trade.

What is Williams %R?

Williams% R, also known as the Williams Percent Range, is a momentum indicator that moves between 0 and -100 and measures overbought and oversold levels. In addition, Williams% R is available to find the market entrance and exit points.

Indicators are very similar to Stochastic Oscillators and are used in the same way. Developed by Larry Williams, it compares the closing price over a specific period (usually 14 days or period) to the range of highs and lows.

Williams% R moves between 0 and -100. Readings above -20 are overbought. A position below -80 is known as oversold.

An overbought or the oversold reading does not mean that the price reverses. Instead, overbought means the price is near the recent range highs, and oversold means the price is near the recent range lows.

Traders can use it for generating trading signals when prices and indicators break out of overbought or oversold zones.

The formula for the Williams %R Is:

Wiliams %R= Highest High−Close/ Highest High−Lowest Low

In this formula,

• Highest High=Highest price in the lookback period of 14 days

• Close=Most recent closing price.

• Lowest Low=Lowest price in the lookback period, which is 14 days.

How to calculate the Williams %R?

Williams% R is based on price. It is usually calculated over the last 14 periods.

Record the ups and downs of each of the 14 courses. Then, in the 14th period, write down the current, highest, and lowest prices. You can now enter all the mathematical variables in Williams% R.

The 15th period records the current price, the highest price, and the lowest price, but only the last 14 periods (not the last of the 15 periods). Then, it calculates the new Williams %R value. At the end of each period, a new Williams %R is calculated using only data from the previous 14 periods.

What does Williams% R tell you?

This indicator tells the trader where the current price is related to the highs in the last 14 periods (or regardless of the number of search periods selected).

If the indicator is between -20 and zero, the price is either overbought or near the upper end of the current price range. If the indicator is between -80 to -100, the price is oversold or far from the highs in the last range.

During the uptrend, traders may see the indicator below -80. However, if the price rises and the indicator crosses back above -80, it may indicate that the upward price trend has resumed.

The same concept can be used to find a short position in a downtrend. Note that when the indicator crosses -20, the price will begin to decline, with Williams %R crossing below -20, indicating that the downtrend may continue.

Traders can also be wary of momentum failures. During a strong uptrend, prices often reach -20 or more if the indicator does not get out of -20 after it has fallen. Before it has fallen again, this indicates that the bullish price momentum is struggling and that even more significant price declines may continue.

The same concept applies to the downtrend. In most cases, values below -80 are achieved. If these lows are not reaching before the indicator rises, it may indicate that the price is rising.

Difference between Williams %R and fast stochastic oscillator

Williams %R represents the market's closing level at the highest level in the reporting period. On the contrary, the fast stochastic, which develops between 0 and 100, shows the market's closing compared to the bottom. Williams %R solves this problem by multiplying it by -100.

The Williams %R and Fast Stochastic Oscillator end up being nearly identical metrics. The major difference between the two is how the scales are measured. 

How to trade by using the Williams %R indicator?

After understanding the Williams% R indicator's basic principles and how to calculate and explain these calculations, it's time to figure out which trading strategies are best to use in this indicator. Let's dive into the discussion below:

Trading strategy 1: Scalp trading strategy

Scalp trading, known as a scalp conversation strategy, impacts the purchase of assets in large quantities. It retains for a relatively short period (for a few hours for a few minutes) and then sells them for profit. 

This strategy is the most popular one due to the wide range of its location, and they are also able to close the desirable benefits on their transactions in relatively few. 

All the Bullish traders want to start trading when the Williams %R plans to move just below the -80 in the uptrend direction. But the bearish traders will enter into the trade when the Williams %R moves just below the -20 in a downtrend direction. 

Scalpers will have minimal leeway when they set the stop loss. 

This is the main reason that long traders will set the stop-loss to almost 0.5%, just below the level of the buy-in price. But on the other side, short traders will set the stop-loss at 0.5%, just above the level of the buy-in price. 

Trading strategy 2: Day trading strategy

Day trading is very similar to scalping trading strategies, with the main difference being that day traders are willing to hold their positions higher than scalpers. Theoretically, however, any trader who buys and sells a position on the same day can be considered a day trader.

If you are acting as a day trader, you can use Williams% R in a few cases to make informed trading decisions that can bring profitable trades. 

Like scalpers, day traders must be prepared to enter trades in the early hours of market opening to take advantage of high market volatility. 

Like scalpers, long-term traders want Williams% R to fall below -80 during a strong uptrend, and short traders want Williams% R to move above -20 in a strong downtrend before making their trades.

In addition, day traders make small profits at high volumes and cannot afford to have bad trades clear their bankroll. Therefore, long-day traders should set their stop-loss to not fall by more than 0.5% below the purchase price.

Hence, short-day traders should set their stop-loss not to exceed the purchase price by more than 0.5%.

Trading strategy 3: Swing trading strategy

Swing is another short-term trading strategy that involves holding a position in a financial instrument for several days or up to several months. However, swing traders can trade higher volumes and earn lower returns than long-term investors!

The number of their trades is usually lower, and the goal to make a profit from their trades is usually higher than scalpers and day traders.

Remember that Williams% R is best for short-term corrections during bridging trends. Swing traders may somehow want to use Williams% R in conjunction with exponential moving averages where they still use benchmarks -80 and -20 for long.

Swing traders have fewer opportunities to wait for a bad trade than scalpers or day traders, but not much. This is because swing traders want to place their stop loss almost 1% below the purchase price for long trades and 1% above the purchase price for short trades. 

Using other technical indicators and tools in swing trading, such as support and resistance, is also a good idea.

Trading strategy 4: Buy & hold trading strategy

It can be argued that buying and holding is not necessarily a trading strategy but a passive form of long-term investment. However, buying and holding involve taking over financial instruments for profit, so it should still be included in this list.

When using the Williams% R for a buy and hold strategy, an essential point to keep in mind is that the tracking time needs to be scaled. For example, you can use eight weeks, or even a year, instead of the 14 days used by more active traders.

Even if the reversal scale is adjusted, you will still want to enter high trades if Williams% R falls below -80 with an upward trend. 

Buying and holding strategies rarely involve making short trades because short trades are hazardous in the long run.

You want a healthy return when buying and holding before relinquishing your position. It would help if you thought of getting the profits of at least 8% of the standard before you liquidate and move elsewhere.

Trading strategy 5: Breakout trading strategy

Breakout trading strategy is a particular strategy that can be a subsection of any strategies discussed above. It is famous for its high probability that swing traders highly use it.

The breakout trading strategy for long traders involves waiting for an instrument to post consecutive closing days above a previous resistance level. You will be buying in the expectation that explosive price increases are imminent. 

If the current price is high or low during the search period, many traders will modify the Williams% R calculation to use the high or low on 14 days before the current record. In the meantime, they will use the current price on the 15th to indicate the strength.

To improve the reliability of the Williams indicator for trading breakouts, it is best to combine pennants, flags, or channel patterns. This is because they all have a history of being reliable indicators of potential breakouts once resistance or support levels are broken. 

You have to trade a potential breakout when you see consecutive Williams R% calculations at 0 or -100. Using the modified calculation, long traders should see consecutive days where Williams% R rises above zero. But the short traders should see consecutive days where Williams% R falls below -100.

Trade breakouts mean you are in the market for explosive profits. Therefore, a conservative profit target would be 10%, and many breakout traders want an even higher return.

Trading strategy 6: Reversal trading strategy

As the name suggests, the reversal trading strategy involves entering a trade when you feel that a reversal in the trend of an instrument's price is imminent. This would mean buying at a low point when you think the price should appreciate for long traders. But for the short traders, it means buying at a time when you feel the price will drop.

Although the Williams% R oscillator indicates overbought and oversold conditions, these conditions do not necessarily indicate a reversal on the horizon. This makes Williams% R a risky tool used in isolation to predict reversals.

To increase its effectiveness with the reversal trading strategy, Williams% R should be combined with solid reversal patterns, such as reversal chart patterns, harmonic patterns, or reversal candle patterns. Also, when trading reversals, you should closely monitor the volume.

If short traders are trading a reversal of an uptrend, but a Williams% R reading is above -20, they should consider exiting the trade. Similarly, long traders trading a downtrend reversal should consider exiting the trade when the Williams% R calculation is below -80. 

How reliable is the Williams %R indicator in trading?

If it is different, it is not an excellent indicator to confirm the increase in prices to make commercial decisions. There are several reasons for this.

Many traders are very high, the price is low, the price is low, and the price will end. Therefore, Williams measures% R highly increased, so there are many sales conditions in reverse indicators.

But in fact, the indicators of terrible prices are not very good. For example, if Williams% R is in a strong uptrend, it tends to buy too much. And in a strong downtrend, it's always an oversold sign.

Many traders are confused and dislike the 0-100 scale used by Williams to calculate R%. Note that the readings above the number 20 are significant, and those below -80 are small.

This is often misleading by some traders. A positive scale from zero to 100 makes more sense. Some traders don't like that the current price is included in the conversion confirmation period. If the current price is high while confirming the conversion, the metric will reset to zero, regardless of the price being above $ 0.01 or $ 100. This indicates an overbought condition.

This appears to accurately identify extreme breakouts when they are in progress, reducing the likelihood of traders losing profitable trades.

Therefore, Williams% R should be analyzed in the appropriate context, taking negative readings into account, to ensure that the correct interpretation is provided.

What are the advantages of Williams %R trading?

Below are some of the main benefits of trading Williams %R that you should keep in mind when using this indicator's signals in making trading decisions:

1. Using the Williams % R indicator, it is relatively easy to identify overbought and oversold conditions in a financial instrument's price using the Williams %R indicator.

2. Effectively identify corrections in a powerful trending tool that provides traders with solid entry points.

3. Mathematically, it's relatively easy to calculate Williams %R values on a stock's stock chart if needed.

4. All in all, it is easy to understand and interpret indicators. For example, the single-scale from zero to -100 isn't too complicated as long as you know how to deal with negative integers. As a result, it is an excellent inspiratory indicator used with various other technical models to help improve the future security price performance. 

Significant limitations on Williams% R

1. Williams has a subtle value of Williams% R index when used in isolation. This is because the indicator has a limited prediction value of the platform, and the dealer can cheat in an adjacent reflection.

2. People who suffer from negative figures are always confused up to 100. If the current price is high or low, it does not show enough strength to break and makes some traders feel that they need to change the indicator's formula.

3. This is basically like a stochastic movement indicator which is confusing to some traders.

Bottom line

In short, the Williams Oscillator Percent Range is a great tool that can help you identify specific highs and lows in any market. It means instead of waiting for the market to develop, you can enter the market at the start of a rally or sell-off.

You can use either of the two Williams percentage strategies presented in this guide, but make sure it fits the current market cycle and personality.