The Williams Percentage Range (%R) indicator is a Momentum Indicator that helps to identify overbought and oversold conditions in a market that isn’t trending. It is named after its developer, Larry Williams who is a famous futures trader.
The Williams %R is read in a similar manner to the Stochastic Oscillator but is shown in an upside-down manner. The Williams indicator has no internal smoothing mechanism, unlike the Stochastic Oscillator. When the indicator is in the 0 to -20% range it shows that it is overbought, while if it is in the range of -80 to -100%, it shows that the pair is oversold. With the Williams %R, as with all momentum indicators, it is often wise to let price reversal before taking the reversal signal as true.
As the price continues to rise or fall, it is quite unusual for indicators to stay in a overbought or oversold condition for a long of time. Because it can take a while for price to reverse when overbought or oversold, it is unwise to take the signal when it first appears. The ability of the Williams %R indicator to anticipate a reversal in a pair is quite captivating, as it will usually has a fall and turns upwards a few periods before the pair's price moves upwards. It will quite often do the opposite as well, as it turns lower a few candles before the price will. However, there is always the possibility that a pair will continue to run in a direction much farther than you are willing to have it go against you, so waiting for price confirmation is best.
The ability to use the Williams %R in a range bound market makes it a natural fit for those traders that like oscillators, and are looking for one to help with sideways markets – as many of the oscillators don’t function well in those conditions.
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