Williams %R is a momentum indicator that measures overbought/oversold levels in a non-trending market. It is similar in interpretation to the (CStats) Stochastic Oscillator, differing in that it uses the high price rather than the low price in the numerator.

A bullish signal is generated when 3 conditions are met: the Williams %R has reached 100; five trading days or bars have elapsed and the Williams %R has subsequently fallen to 95. A bearish signal is simply the reverse: the Williams %R has reached 0; five days elapsed and the indicator turned back down.

Williams recommends using a momentum indicator and/or a moving average to establish a market direction, then only trading with the trend. In trending markets, the values will stay at one end of the scale, thus giving false signals to trade against the trend.

References

Williams, L. How I made a Million Dollars Last Year Trading Commodities.