This is the second article in our Williams Percent Range series. If you haven’t already we suggest that you check out the first article about the Williams Percent Range Indicator. In that article, we covered the background of the Williams Percent Range indicator, how it is calculated, and how it looks on a chart. 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.
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.
How to Read a Williams Percent Range Chart
The Williams Percent Range oscillator with a setting of “14” is presented on the bottom portion of the above “15 Minute” chart for the “EUR/USD” currency pair. In the example above, the “Blue” line is the Williams Percent Range “%R” value, while the “Red” line represents the smoothed moving average, added for trade signal confirmation. Williams Percent Range values above -20 and below -80 are worthy of attention.
The key points of reference are highpoints and low points. The “Williams Percent Range Rollercoaster” tends to be more sensitive than other oscillators and is favored by many forex traders. The Williams Percent Range oscillator attempts to convey pricing momentum direction changes. Typical “oversold” and “overbought” conditions are noted on the chart, and line crossings, provided by the additional SMA, help to confirm these trading signals.
As with any technical indicator, a Williams Percent Range chart will never be 100% correct. False signals can occur, but the positive signals are consistent enough to give a forex trader an “edge”. Skill in interpreting and understanding Williams Percent Range signals must be developed over time, and complementing the %R tool with another indicator is always recommended for further confirmation of potential trend changes.
In the next article on the Williams Percent Range indicator, we will put all of this information together to illustrate a simple trading system using this Williams Percent Range oscillator.
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