The “Williams Percent Range”, or “%R”, indicator is a popular member of the “Oscillator” family of technical indicators. Larry Williams created the %R oscillator along the same lines as the Stochastics indicator, but without the “smoothing” component and with a reversed scale. The Williams Percent Range indicator is uncanny in its ability to signal a reversal one or two periods ahead of reality. Traders use the indicator to determine overbought and oversold conditions and reversals in market trends.
The Williams Percent Range indicator is classified as an “oscillator” since the values fluctuate between zero and “-100”. The indicator chart typically has lines drawn at both the “-20” and “-80” values as warning signals. Values between “-80” and “-100” are interpreted as a strong oversold condition, or “selling” signal, and between “-20” and “0.0”, as a strong overbought condition, or “buying” signal.
Williams Percent Range Formula
The Williams Percent Range indicator is common on Metatrader4 trading software, and the calculation formula sequence involves these straightforward steps:
- Choose a period “N” for “%R” (Standard is “14”);
- %R = 100 * (HN – CCP)/(HN – LN) where CCP = Current Closing Price, LN = lowest low of past “N” periods, HN = highest high of past “N” periods;
Software programs perform the necessary computational work and produce a Williams Percent Range indicator as displayed by the “Blue” line in the chart below:
The Williams Percent Range indicator is composed of a single fluctuating curve. Traders will occasionally add a Smoothed Moving Average, as above in “Red”, to enhance the value of the trading signals. In the example above, the “Blue” line is the Williams Percent Range, while the “Red” line represents a “SMA” for “14” periods. The Williams Percent Range is viewed as a “leading” indicator, in that its signals foretell that a change in trend is imminent. The weakness in the indicator is that timing is not necessarily a product of the %R oscillator, the reason for attaching a “lagging” moving average to confirm the Williams Percent Range signal.
Forex traders favor the Williams Percent Range indicator because of its ability to foretell reversals one to two periods ahead of time. As with any oscillator, one should wait until actual pricing behavior confirms the reversal.
The next article in this series on the Williams Percent Range indicator will discuss how this oscillator is used in forex trading and how to read the various graphical signals that are generated.
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