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Williams %R is a momentum indicator used in technical analysis to identify overbought and oversold conditions in the market. It oscillates between 0 and -100, with readings above -20 indicating overbought conditions and readings below -80 suggesting oversold conditions (see image below).
Williams %R is calculated by determining the highest high and the lowest low over a specified time period, usually 14 periods. The current closing price is then compared to the highest high and the lowest low to calculate the percentage of the range that the price has covered. The formula is: %R = (Highest High - Close)/(Highest High - Lowest Low) * -100. 
Traders can use Williams %R to identify potential buy and sell signals. When the indicator crosses above -20, it suggests an overbought condition, indicating a potential selling opportunity. Conversely, when Williams %R crosses below -80, it suggests an oversold condition, indicating a potential buying opportunity. It’s important to note that Williams %R does not have internal smoothing. As such, it is plotted upside-down, with values closer to -100 indicating a potentially bullish market and values closer to 0 indicating a potentially bearish market.
In addition, Williams %R can be used to determine market sentiment. When Williams %R rises above -50, it signifies that prices are in the upper half of the high-low range for the specified lookback period, suggesting bullish sentiment. In contrast, when Williams %R drops below -50, it indicates that prices are in the lower half of the high-low range for the specified lookback period, signaling bearish sentiment.
Williams %R also has its drawbacks. For example, it can generate false signals in trending markets. Traders may experience whipsaws, where the indicator gives premature signals that do not materialize into significant price movements. As with any TA indicator, it is recommended to use Williams %R in conjunction with other tools, such as RSI or MACD, to mitigate the risk of false signals.
Learn more: 5 Essential Indicators Used in Technical Analysis.