Using the Williams Percent Range
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.