he Williams Percent Range, also called Williams %R, is less popular than the previous indicators.
The meaning of the indicator is to measure the ability of bulls and bears to close prices every day near the edge of the range over the past period. The Williams Index confirms the trends and warns for upcoming changes.
In other words, it is a momentum indicator that compares the closing price to the highest and lowest prices of a given time period (typically 14 days period).
The basic principles for the analysis of oscillators discussed in our previous lessons are also applicable to the% R oscillator.
Its main function is to show areas of overbought and oversold conditions.
The Williams Percent Range indicator has a special trait – it can accurately predict price reversal.
The difference between RSI and Williams %R is that the RSI uses mid-point figure (50) to define the trend strength, while the Williams indicator uses extreme levels (-20 and -80) for cues.
How to Trade Forex Using the Williams %R Indicator?
To build the% R indicator in the inverted scale, a negative sign (for example -30%) is usually assigned to its values.
The values of the indicator in the range from -80% to -100% indicate an oversold status.
The values ranging from -0% to -20% indicate that the market is overbought.
A reading below -80% means that the market is oversold.
The difference between Stochastic and Williams %R is that Stochastic shows you a relative location by using the lowest price in a time range, while %R uses the highest price to point to the exact closing price’s position.
You can say that an invert the %R line is actually a Stochastic’s %K line!
REMEMBER: If there is an area of overbought or oversold, it does not necessarily mean that the price will reverse.
“Overbought” simply expresses that the price is near the highs of its recent range.
“Oversold” is when the price is near to the lows of its recent range.
Determining Trend Strength Using %R
% R Williams takes into account the position of the last closing price relative to the range – “highest-lowest price” in the last period.
It expresses the difference between the closing price, which took place the day before, and the closing price of “today” as a percentage of the range for the last period.
If the WPR chart exceeds the top line, it shows the strength of the bulls, but also the overcrowding market.
If WPR falls below the bottom line, we can conclude that the bears are very strong and the market is oversold.
The indicator reflects the balance of power of bulls and bears at the time of market closing.
It shows whether the bulls can close the market near the upper range of the range in the last
period or whether the bears are strong enough to close the prices near the bottom of the range.
Look at the EUR/USD’s daily chart below.
You will notice that the pair tried to extend its uptrend but failed to reach new %R highs.
It simply could mean that the bullish momentum might be over because the price couldn’t reach the high end of their range so quickly as they did before.
Then, the pair ended up falling with 200 pips in a week!
(Williams %R with EURUSD Example)
After the falling, the price immediately gained enough bullish momentum to push %R above its oversold levels.
Although the currency pair is still in red candlesticks, they’re not are not able to put Williams %R back to its previous lows.
Finally, the bulls DID WIN and take over by pushing the currency pair EUR/USD around 775 pips higher in less than 30 days.
Just what Williams %R predicted.
Isn’t this Williams %R such a good oscillation? According to us, it won the SUPER BOWL!