Williams %R Indicator: How to Spot Overbought and Oversold Markets

The Williams %R (Williams Percent Range) is a momentum indicator that helps traders identify overbought and oversold conditions, making it useful for timing market entries and exits.

In this guide, we’ll explain how Williams %R works, how to use it effectively, and the best Williams %R trading strategies.

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What Is the Williams %R Indicator?

Williams %R is an oscillator that moves between 0 and -100, measuring how close the current price is to the highest high over a given period.

• Above -20 → Market is overbought (potential selling opportunity).
• Below -80 → Market is oversold (potential buying opportunity).

Unlike RSI, which moves from 0 to 100, Williams %R is inverted, meaning values closer to zero indicate overbought conditions, and values closer to -100 indicate oversold conditions.

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How to Calculate Williams %R

The Williams %R formula is:

[
\%R = \frac{\text{Highest High} – \text{Current Close}}{\text{Highest High} – \text{Lowest Low}} \times -100
]

Where:

• Highest High = The highest price over a selected period (default 14 periods).
• Lowest Low = The lowest price over the same period.
• Current Close = The latest closing price.

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How to Use Williams %R for Trading

Identifying Overbought and Oversold Conditions

• Sell when Williams %R is above -20 and turning downward.
• Buy when Williams %R is below -80 and turning upward.

Williams %R Trend Confirmation Strategy

• If Williams %R stays above -50, the market is in an uptrend.
• If Williams %R stays below -50, the market is in a downtrend.

Williams %R Divergence Strategy

Divergences between price and Williams %R often indicate trend reversals.

• Bullish Divergence: Price makes a lower low, but Williams %R forms a higher low → Potential upward reversal.
• Bearish Divergence: Price makes a higher high, but Williams %R forms a lower high → Potential downward reversal.

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Best Williams %R Trading Strategies

Williams %R + Moving Average Strategy

• Buy when Williams %R is oversold (-80 or below) and price is above the 50-day SMA.
• Sell when Williams %R is overbought (-20 or above) and price is below the 50-day SMA.

Williams %R + RSI Strategy

• Confirm Williams %R signals with RSI for stronger trade setups.
• Buy when Williams %R is below -80 and RSI is below 30.
• Sell when Williams %R is above -20 and RSI is above 70.

Williams %R + MACD Strategy

• Use MACD crossovers to confirm Williams %R signals.
• If Williams %R is oversold and MACD gives a bullish crossover → Strong buy signal.
• If Williams %R is overbought and MACD gives a bearish crossover → Strong sell signal.

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Best Williams %R Settings for Different Trading Styles

• Day Trading: 7-period Williams %R for quicker signals.
• Swing Trading: 14-period Williams %R (default setting).
• Long-Term Investing: 21-period Williams %R to reduce noise.

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Common Williams %R Mistakes to Avoid

❌ Relying only on overbought/oversold levels – Markets can stay overbought or oversold for extended periods.
❌ Ignoring trend direction – Always confirm Williams %R signals with price action or moving averages.
❌ Trading every crossover – Combine Williams %R with RSI, MACD, or trendlines for stronger signals.

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Final Thoughts – Should You Use Williams %R?

The Williams %R indicator is a great tool for spotting momentum shifts, overbought/oversold conditions, and potential reversals. However, it works best when combined with other indicators like RSI, MACD, or moving averages.

📌 Want to Master Williams %R?

Test different Williams %R settings and confirm signals with other indicators before using it in live trading!