One more indicator oscillator Williams R indicator or Williams %R, How to use Williams percent range indicator? In the previous chapter, we studied several indicators that function to determine oversold and overbought areas. Stochastic indicators and RSI indicators.
Williams R indicator is also one indicator that serves to determine the overbought and oversold areas.
The Williams R indicator shows the relationship between the closing price and the price range (highest price – lowest price) at a certain time period. The main feature that makes this indicator being more popular is. Its ability to predict price reversals one or two bars before the price movement actually reverses. With indications of overbought or oversold, traders may anticipate price reversals.
Thus this indicator is a leading indicator that allows you to get early trading signals.
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What is Williams %R?
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Williams R indicator or as William% R is a momentum indicator with function to analyze overbought and oversold. This indicator was developed by Larry Williams in 1979, the first of which was for stock price analysis.
Williams% R as well as the stochastic oscillator indicator because they are similar and only differ on the opposite scale of values. If the stochastic value is on a scale of 0 to +100 then the% R scale value is 0 to -100.
Besides that Williams R indicator does not use a smoothing factor as in stochastic. This indicator can be applied to all trading time frames. The Williams% R indicator shows the relationship between the closing price and the price range (highest price – lowest price) at a certain time period. With overbought or oversold indications, traders can recognize price reversals.
How to read Williams R indicator
Williasm% R is an indicator that functions to read overbought and oversold areas. Overbought is a certain condition where the buy volume is too high which causes this indicator to reach its highest limit level.
Based on William% R overbought area occurs when the reading of the% R indicator scale reaches between 0 to -20.
Conversely, an oversold state occurs when the price is so low that this indicator shows its lowest level scale.
Based on William% R an oversold state occurs when the% R scale reading reaches between -80 to -100.
On the popular Metatrader platform, how to attached indicator step is to click menu Insert -> Indicators -> Oscillators -> Williams Percent Range.
Below is an example of using the% R indicator.
Overbought and oversold
Scales of -20 and -80 are the default values used by Larry Williams, also for period 14.
As shown in the picture above, overbought conditions occur in the range of 0 to -20 scale, which shows sell signals, while oversold conditions occur in the range of -80 to -100 which shows buy signals.
Note; when the indicator shows the overbought and oversold area, it does not guarantee a price reversal, but only gives the possibility that the price is approaching the highest level and/or the lowest level.
If% R is between the two extreme levels, which is between -21 to -79, then it is called a neutral state. Momentum reversal occurs when% R has reached the overbought or oversold area more than once but failed to return to the extreme area.
This shows a weakening momentum and is a strong signal of a reversal in the direction of future prices that are not too far away.
Formula Williams %R
You might don`t need to be confused with this William% R calculation method, because when you attach this indicator to the chart it will automatically calculate using the period used. But just to add insight the following is the formula for calculating the William percent range indicator.
N = length of the period used.
By default, this indicator by the publisher Larry Williams suggests using period 14.
The% R indicator shows the value −100 meaning that today’s close is the lowest low of the last N days
While a scale with a value of 0 indicates that today’s close is the highest in the last N days.
How to use Williams Percent Range indicator
Broadly speaking, the way to use the Williams percent range indicator is the same as using the stochastic indicator.
Because they both use the same formula to show the relative location of a currency pair?
The difference in the calculation is that Stochastic shows your relative location by using the lowest price in the time span while% R uses the highest price to determine the position of the closing price. So, If you reverse this% R, you will get the same line as the stochastic indicator.
This is why Williams% R uses a scale of 0 to -100 while Stochastic is scaled from 0 to 100.
- The level above -20 is Overbought
- The level below -80 is Oversold.
- How to use buy signals by looking at levels below -80.
- Conversely, how to use sell signals by looking at levels above -20
Isn’t it simple?
Yes right, it is very simple, but the publisher recommends using this indicator in a trending market when strong trending momentum will be easily obtained.
But some traders try to use% R for sideways.
To open short positions you should wait for prices to enter the overbought area or above the -20 scale, but to make sure you better wait for the% R line to cross the -20 scale, and when crossings occur then you can open short positions
And for the exit point, you wait until the% R line approaches or crosses the scale of -80.
To make a Buy position you should wait for the% R line to be in the oversold area or below the -80 scale.
But to make sure it’s better to wait for the% R line across the -80 scale, and if the% R line is above the -80 scale you can open long positions with exit target waiting for the% R to near or cross the -20 scale.
How to use Williams R indicator to Determining Trend Strength
To use Williams% R to measure the strength of a trend, the sensitivity of Williams% R to changing prices is useful for analyzing whether to maintain a bullish trend or downtrend.
In the example of the EUR/USD daily chart below, you can see that the pair tried to extend its uptrend but failed to reach new prices and the highest R%.
This means that the bullish momentum may run out of steam, and finally, the pair falls 200 pips in a week!
No needs wait a too long time for the price to gain bullish momentum when% R pushes its oversold level.
Although EUR/USD still shows a red candlestick, it is not enough to bring Williams% R back to previous lows.
After that it turned out, the buyer took over and pushed EUR/USD up around 775 points higher in less than 30 days.
If you really understand the% R indicator will be very good to measure the momentum or strength of the trend.
Advantage and disadvantage Williams Percent Range
- + This indicator can be for all timeframes with various trading styles.
- + This indicator can measure the strength of a trend by observing candlestick patterns.
- + Williams% R works well in market trending although some use it on the sideways market.
- – Analysis accuracy is needed to reduce the fake signals that appear.
- – Overbought and oversold areas are not guaranteed as signals of a trend reversal.
The Williams R indicator will add to the existing toolbox collection. Even though they have the same function as the stochastic oscillator, both of them have different approaches in their calculations.
However this indicator is not the holy grail system, many are looking for the holy grail. But no one has found it except with the sweet promise of the scammers who take advantage of the narrowness.
How to use the Williams percent range indicator is also easy to understand the rules, it’s just that in practice you still have to learn more with trading experience. With more experience, you will better understand the character of this indicator in various market conditions.
You can open a TenkoFX demo account as a learning tool to apply how to use the Williams percent range indicator.
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