Forex Indicators: Examining the Williams’ Percent Range Indicator

ForexNewsNow | Published on September 13, 2011 at 5:27 am

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ForexNewsNow – The Williams’ Percent Range or %R indicator that is sometimes used by forex technical analysts when trading in an online trading account was originally developed by Larry Williams.

This bounded oscillator indicator is typically used by technical forex traders to determine extreme market conditions, and as a result, it exhibits some similarities to the Stochastics Oscillator.

Graphing the Williams’ Percent Range Indicator

Figure 1 below depicts the William’s Percent Range indicator plotted in red inside the indicator box below the price action for the exchange rate of the GBP/USD currency pair using the popular MetaTrader forex trading platform that is supported by many online forex trading brokers.

The exchange rate portion of the chart below uses daily time periods, and the William’s Percent Range indicator is computed for the traditional 14-day time period that was originally suggested by Larry Williams.

 Figure 1: A daily bar chart for the GBP/USD currency pair plotted in black along with the 14-day Williams’ Percent Range Indicator plotted underneath in red inside the indicator box.

 

Computing the Williams’ Percent Range Indicator

The Williams’ Percent Range Indicator shows how the market’s closing price for a particular bar relates to the high and low range of prices observed within a specific previous time period.

The equation used by forex traders and platforms offered by forex trading brokers to compute the Williams’ Percent Range Indicator is:

Williams %R(n) = {Hi(N,n)-Cl(n)}/{Hi(N,n)-Lo(N,n)} x 100

Where n is the current time period bar, N is the number of time periods that is typically 14, Hi(N,n) and Lo(N,n) are the highest and lowest prices respectively observed over N time periods, and Cl(n) is the close of time period n.

Using the Williams’ Percent Range Indicator

Although not one of the most popular technical indicators among forex traders, the Williams Percent Range indicator is still sometimes used by professional traders operating in the Interbank forex market or trading currencies through forex trading brokers to determine an overbought or oversold market in a particular currency pair.

In particular, this bounded oscillator fluctuates between the values of 0 and -100 for a currency pair. Extreme levels of the indicator that fall between zero and -20 are considered overbought by technical traders, while levels between -80 and -100 would be considered oversold.

Furthermore, in terms of the indicator’s best forex trader usage, the Williams’ Percent Range indicator has earned a good reputation for shifting direction just prior to a major market peak or trough. This characteristic makes it an especially useful leading indicator of future price action in a currency pair and so it can be used by a forex company or an individual trader as part of a trading plan to indicate upcoming shifts in the prevailing trend.

Despite the Williams’ Percent Range Indicator’s usefulness as a leading signal of trend shifts, most forex traders using it will wait until the market has also reversed its direction before trading based on its signals.

Accordingly, if the Williams’ Percent Range indicator for a currency pair was reading just inside oversold territory at -85, perhaps the best forex trader practice would be to await a reversal to the upside in the pair’s exchange rate before taking a long position in one’s online trading account. Another possibility could involve waiting for the Williams’ Percent Range indicator to move back into neutral territory by falling below the 80 level.

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