For a bullish signal, the %R line will spend a period of time below -80 in the oversold before rising back above it. As the pattern continues, it crosses the -50 line within just 14 days. The event is confirmed at the -50 crossing. For a bearish signal, the %R line will spend a period of time above -20 in the overbought before then falling back below this point. As the pattern continues, the -50 line is crossed within 14 days. The crossing of -50 is the confirmation required.
Larry Williams developed the Williams %R and first introduced the theory to track the position of a price compared to its highest and lowest range over a 14-bar period. Ranging from 0 to 100, Williams %R detects conditions of overbought or oversold with either extreme showing an extenuated price. Ultimately, the instrument is considered oversold when the %R falls below the -80% line. On the flip side, the instrument is considered overbought when the %R rises above the -20% line. To define the boundaries, some industry experts prefer to use -75% to -25%.
It is important to note that a price reversal isn't necessarily initiated when the %R falls outside the -80% or -20% lines; in fact, prices can still fall, stay stable, or rise regardless.