A trader's guide to the Williams %R indicator

What is the Williams %R indicator?

The Williams %R – also known as the Williams Percentage Range – is a momentum indicator which some traders use to find entry and exit points for their positions. It uses 0 to -100 as its values, with 0 representing overbought and -100 representing oversold.

Traders will usually take a move above -20 as a signal that an underlying market is overbought, and a move below -80 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. 14 periods are usually used as the foundation for the Williams %R calculation, and that 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:

1. Create or log in to your IG account
2. Visit our award-winning trading platform
3. Select that market you want to trade
4. Choose the Williams %R from our in-platform indicators
5. Decide whether to go long or short
6. Take steps to manage your risk
7. 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 -20 levels.

For example, if a market moved above -80 – to -70 and then -60 – a trader might assume that the market is currently bullish, and there is an upward rally in the underlying market price. In this case, they could go long and speculate on the price of the underlying continuing to increase.

A trader would likely hold this position until the Williams %R moved above -20, at which point they might take the overbought signal as a sign that they should sell their position and realise their profits.

On the other hand, a trader might take a move below -20 – to -30 and then -40 – then a trader could take this as a signal that the market is turning bearish. In this case, they might decide to go short on the underlying and speculate on the price continuing to fall.

A trader would likely hold a short position until the Williams %R moved below -80. Once this happens, they might decide to take the oversold signal as an indicator to close their short position and realise any profits that they had made.

Things to bear in mind when trading with the Williams %R

The most important thing to remember when trading with the Williams %R is that overbought or oversold signals do not necessarily mean that an asset’s overall trend is going to reverse. Instead, many traders will use these signals to confirm a trend, rather than abandon their positions.

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 the lows of its previous range.

Williams %R indictor summed up

• The Williams %R is a momentum indicator
• It uses values between 0 and -100
• Values over -20 indicate overbought assets; values under -80 indicate oversold assets
• 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