Watch the testing video here:
Williams Percent Range Indicator
The Williams Percent Range, also known as the Williams %R, is a momentum indicator that traders use to identify overbought or oversold conditions. Like other oscillators, it appears in its own window at the bottom of the chart and has a scale that moves back and forth between 0 and minus 100. Quite often, the Williams Percent Ranges used to find entry and exit points in a market and is used very similarly to the stochastic oscillator.
The indicator was developed by a well-respected trader Larry Williams, and functions as a comparison tool of swords. It will compare the closing price of a financial instrument to the high/low range over a specific number of candles looking back. It’s typically used with the setting on 14. That being said, some traders have found other settings to be useful but for the purposes of this article we will use the standard settings.
Adding this indicator to your charts in Metatrader is quite simple. You simply need to click on Insert from the top of the platform, pull down the menu to Indicators, then look for Oscillators, and select Williams Percent Range.
When you do, you will notice that there are a few options that you can fix right away. Beside the usual display options such as color and visualization, there is the Period setting that by default is 14. Furthermore, you can choose a Fixed Minimum and Fixed Maximum. They are typically set at -100 for the minimum, and 0 for the maximum. By clicking Okay, the indicator will appear at the bottom of the trading platform, and the indicator is set up to start trading using this tool.
Trading with the Williams Percent Range indicator is relatively straightforward and is almost identical to using the Stochastic Oscillator. There is 20% on the top that represents overbought, which extends from the minus 20 level to the 0 level, and the bottom 20% that extends from the -80 level down to the minus 100 level offering an oversold condition.
It should be pointed out, though, that just because the line in the window goes into the overbought or oversold condition, it doesn’t necessarily mean that the market is ready to reverse. What it actually means is that an overbought condition is close to the top of the recent range, just as the indicator reaching into the oversold condition suggests that prices are close to the bottom of the recent range, meaning the last 14 candles if you are using the standard settings.
Using this thought process, once the price and indicator comes back from the overbought or oversold condition, then it signals a potential trade.
Because of this, the market is then expected to return to the middle of the range based upon a “reversion to the mean” strategy. In this sense, it should be noted that it becomes a reversal strategy, but only after you get the signal and then a pullback into the norm.
Take a look at the chart underneath. This is the standard use for the Williams Percent Range indicator, and as you can see there are red and blue arrows. The red arrows represent areas where the price and indicator line have reached into the overbought area, and then pulled back. This suggests that the market has fired off a sell signal and would be traded as such.
When you see the blue arrows, it represents areas where the price crossed over to the oversold condition, right along with the Williams Price Range indicator signal line. As the market has broken back above the minus 80 level, it fired off a buy signal.
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