Developed by Larry Williams, the Williams %R is a momentum indicator that works much like the Commodity Channel Indicator or the CCI. It is especially popular for measuring overbought and oversold levels.
The scale ranges from 0 to -100 with readings from 0 to -20 considered overbought and readings from -80 to -100 considered oversold.
The William %R shows the relationship of the close relative to the high-low range over a set period of time. The nearer the close is to the top of the range, the nearer to zero(higher) the indicator will be. The nearer the close is to the bottom of the range, the nearer to -100(lower) the indicator will be. If the close equals the high of the high – low range, then the indicator will show 0 (the highest reading). If the close equals the low of the high-low range, then the result will be -100 (the lowest reading).
The most common uses of Williams %R in Forex and Binary Options:
One method of using Williams %R might be to identify the underlying trend and then look for trading opportunities in the direction of the trend. In an up trend, traders may look to oversold readings to establish long positions. In a downtrend, traders may look to overbought readings to establish short positions.
Also, the Divergence between Williams %R and the price indicates that an up or down move is weakening. Bearish Divergence occurs when prices are making higher highs but the Wiliams %R is making lower highs. This is a sign that the up move is weakening. Bullish Divergence occurs when prices are making lower lows but the Williams %R is making higher lows. This is a sign that the down move is weakening.