A trader's guide to the Williams %R indicator
The Williams %R is a popular momentum trading indicator. Learn more about what the Williams %R is, how to calculate it and how to trade using Williams %R trading strategies.
What is the Williams %R indicator?
The Williams %R – also known as the Williams Percentage Range – is a momentum indicator that some traders use to find entry and exit points for their positions. It uses 0 to -100 as its values, with 0 being used to represent an overbought market, and -100 being used to represent an oversold market.
Traders will usually take a move above -20 towards 0 as a signal that an underlying market is overbought, and a move below -80 towards -100 as a signal that the market is oversold. In the price graph below, you can see the Williams %R underneath the price chart, with the overbought and oversold signals highlighted.
Williams %R calculation formula
The Williams %R calculation uses the highest high in the last 14 periods, the lowest low in the last 14 periods and the most recent closing price. The number of periods can be 14 seconds, minutes, hours, days or months – although 14 days is the most common.
The Williams %R formula is as follows:
How to trade using the Williams %R indicator
To trade using the Williams %R indicator, follow the steps below:
- Create or log in to your IG account
- Visit our award-winning trading platform
- Select that market you want to trade
- Choose the Williams %R from our in-platform indicators
- Decide whether to go long or short
- Take steps to manage your risk
- Open and monitor your trade
Williams %R trading strategies
Popular Williams %R trading strategies involve buying an underlying market once the indicator moves above -80, or selling an underlying market once the indicator moves below -20.
For example, if a market moved above -80 towards 0, a trader might assume that the price is currently bullish, and there will be an upward rally. In this case, they could go long and speculate on the price of the underlying continuing to increase.
A trader might hold their position until the Williams %R moved above -20, at which point the overbought signal could serve as a sign that they should sell their position to realise a profit.
On the other hand, a trader might take a move below -20 towards -100 as a signal that the market is turning bearish. In this case, they could go short and speculate on the price continuing to fall.
A trader would likely hold a short position until the Williams %R moved below -80. At this point, they could take the oversold signal as a sign to close their short position and accept any profits.
Things to bear in mind when trading with the Williams %R
When trading with the Williams %R, it is important to remember that overbought or oversold signals do not necessarily mean that a market’s overall trend is going to reverse.
Instead, an overbought signal could simply mean that the underlying market price is near the highs of its previous range, and an oversold signal could mean that it is near its previous lows.
Williams %R indictor summed up
- The Williams %R is a momentum indicator
- It uses values between 0 and -100
- Values over -20 can indicate overbought markets, and values under -80 can indicate oversold markets
- The most common time frame used to calculate Williams %R is 14 days
- You can trade with the Williams %R indicator by going long or short with CFDs
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