The Williams %R, or just %R for short, is an indicator that moves between 0 and -100, providing insight into the weakness or strength of a financial asset. It is used in various capacities, including overbought and oversold levels, momentum confirmations, and providing trade signals. To use the Williams %R effectively, we must understand how it works, its trading applications, as well as its strength and limitations. The %R is very similar to the stochastic oscillator. The only difference between the two indicators is how they are scaled. The %R fluctuates between 0 and -100, while the stochastic moves between 0 and 100. The stochastic also has a moving average applied to it, so it can be used for crossover signals.
The Williams %R only has one line by default, although a moving average can be applied to it to give all the functionality of the stochastic. The indicator was developed by Larry Williams and shows how the current price compares to the highest price over the look back period. Typically the look back is 14 periods, on a weekly chart, that is 14 weeks, on an hourly chart 14 hours. When the indicator is near zero, it shows the price is trading near or above the highest high during the look back period. If the indicator is near -100, the price is trading near or below the lowest low during the look back period. Above -50 and the price is trading within the upper portion of the 14 period range, below -50 and the price is trading in the lower portion of the 14 period range.