Williams %R Trading

The formula calculates distance from the highest high, which is why values are negative. 0 means close equals highest high (overbought), -100 means close equals lowest low (oversold). It's just a different presentation than Stochastic, but conveys the same information.

14 is standard and Larry Williams' original. Use 10 for day trading (more responsive), 20-28 for position trading (smoother). Start with 14 and adjust based on your trading style and the specific market.

They're essentially the same indicator with inverted scales. Williams %R ranges 0 to -100; Stochastic %K ranges 0 to 100. %R = %K - 100. Where %K shows 80 (overbought), %R shows -20. Same information, different presentation.

In ranging markets, yes - oversold often precedes a bounce. In trending markets, %R can stay oversold as price continues falling. Check the market regime (ADX) first. Only fade extremes reliably in ranges.

Williams %R at -50 means the close is exactly midway between the highest high and lowest low of the lookback period. It's a neutral reading - neither overbought nor oversold. Some traders use -50 crosses as momentum signals.

Compare price swings to %R swings. Bullish divergence: price makes lower low but %R makes higher low. Bearish divergence: price makes higher high but %R makes lower high. Look at swing points, not every bar. Divergence warns but isn't a signal alone - wait for confirmation.

A failure swing occurs when %R reaches an extreme (say -90), bounces to -70, drops again but only reaches -85 (fails to make new extreme), then rises above -70. The failure to make a new extreme shows exhaustion. Entry is on break of intermediate level (-70). Very high probability signal.

Check ADX. ADX > 25 = trending; use momentum approach (ride %R signals in trend direction). ADX < 20 = ranging; use mean reversion (fade %R extremes back to -50). In between, be cautious or use smaller size.

Use MA for trend direction, %R for timing. Above 50 EMA = only take %R long signals (oversold bounces). Below 50 EMA = only take %R short signals (overbought fades). This filters counter-trend trades.

Yes, in strong trends. In a strong uptrend, %R can hover between 0 and -20 for weeks. In a strong downtrend, it can stay between -80 and -100. This is why checking the market regime before fading extremes is essential.

A %R hook is a sharp turn within an extreme zone. Example: %R drops to -92, then sharply turns up while still below -80, showing an 'upturn hook.' This is an early momentum shift signal. Enter on the hook with stop below the extreme. It provides earlier entry than waiting for threshold cross.

Draw trendlines connecting %R swing highs or lows, just like on price. A break of %R's down trendline often precedes a price breakout upward. A break of %R's up trendline often precedes a price breakdown. These give early warning before price confirms.

Tiered sizing based on signal quality: 1% risk on standard threshold crosses, 1.5% on divergence confirmations, 2% on failure swing patterns. Higher probability signals warrant larger positions. Always stay within total portfolio risk limits.

When %R oscillates within an extreme zone for extended periods (e.g., bouncing between 0 and -20 for 2+ weeks), it indicates a very powerful trend. Don't fade it. Trade with the trend until %R breaks out of this pattern and shows a meaningful reversal.

Define: 1) Regime filter (ADX for mean reversion vs momentum mode), 2) Entry rules (threshold crosses, divergence, failure swings), 3) Exit rules (opposite threshold, -50, or divergence), 4) Stops (swing-based or ATR-based), 5) Position sizing by signal type. Backtest with walk-forward validation across multiple market conditions.