This is the third article in our Williams Percent Range indicator series. If you haven’t already, we suggest that you check out the first article about the Williams Percent Range Indicator. In the previous two articles, we have covered the background, the calculations involved, and how to use and read the Williams Percent Range indicator. The Williams Percent Range indicator is uncanny in its ability to signal a reversal one to two periods ahead of reality. Traders use the indicator to determine overbought and oversold conditions and reversals in market trends.
Forex traders focus on the Williams Percent Range key points of reference, which are highpoints and lowpoints. As with any technical indicator, a Williams Percent Range chart will never be 100% correct in the signals that it presents, but the signals are consistent enough to give a forex trader an “edge”. Skill in interpreting and understanding Williams Percent Range indicator signals must be developed over time. In the example below, let’s develop a simple trading system based on Williams Percent Range signals and alerts.
The following trading system is for educational purposes only. Technical analysis takes previous pricing behavior and attempts to forecast future prices, but, as we have all heard before, past results are no guarantee of future performance. With that disclaimer in mind, the “Green” circles on the above chart illustrate optimal entry and exit points for a trading strategy using Williams Percent Range analysis in combination with the additional smoothed moving average – note the reversing slope patterns of the SMA as confirmation points for the %R trading signals generated.
A simple trading system would then be:
- Determine your entry point after the “Blue” %R line crosses the lower extreme value and after the “Red” line SMA flattens before changing direction;
- Execute a “Buy” order for no more than 2% to 3% of your account;
- Place a stop-loss order at 20 “pips” above your entry point;
- Determine your exit point after the “Blue” %R line rises above an extreme upper value and after the “Red” line SMA flattens before changing direction.
Steps “2” and “3” represent prudent risk and money management principles that should be employed. This simple trading system would have yielded one profitable trade totaling 120 “pips”, but do remember that the past is no guarantee for the future. However, consistency is your objective, and hopefully, over time, Williams Percent Range Technical Analysis will provide you with an “edge”.
That concludes our series on the Williams Percent Range Indicator. For further reading visit our section on Forex indicators.
We also recommend you to read about the Aroon indicator.