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 the Williams Percent Range indicator to your charts

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 colour and visualisation, 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.

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.

Using the Williams Percent Range indicator in a trend

While the easiest way to use the Williams Percent Range indicator is as a strategy for reversals, and perhaps within a range, you can also use it right along with the overall trend to see when the trend may continue. It also can be used to pay attention for potential momentum failure in that same trend.

For example, if the market is in an uptrend, but starts to pull back, traders may be looking for an opportunity to join the longer-term trend. When the indicator dips below the -80 level and then pops back above it, it has reached the oversold indication, and then reentered the overall norm.

This means that buyers may be coming back to pick up the markets and by extension will continue to trend in the same uptrend it has been in. By extension, if the market has been in a longer term downtrend, it should be noted that a move above the minus 20 level and then a drop below it in the indicator window could signify that the sellers are starting to come back in and push the market lower. In this sense, it can be used as a continuation indicator.

In the chart below, notice that there are several blue arrows on the chart. You can see that the market had been in a bit of an uptrend, while the market had pulled back. In fact, the market had pulled back into the oversold condition on the Williams Percent Range indicator, and then moved back into normalcy. That continued the uptrend and offered a nice opportunity to start trading to the upside again.

Adding a moving average to increase effectiveness

One of the indicators that comes to mind when trying to use this indicator is the moving average. After all, it can give you an idea as to what the trend is. If you are looking to use the Williams Percent Range indicator in a trend, it makes quite a bit of sense to use a moving average on the chart to determine whether or not you have an opportunity to get long or short in a currency pair. Beyond that, it also can tell you when it’s time to use the Williams Percent Range indicator for a range bound trade as well.

Take a look at the chart and notice that there are red and blue arrows. The first arrow, the red one, shows when the indicator went up into the overbought condition as the market approached the 50 EMA.

Furthermore, the slope of the moving average had been lowering for quite some time, and as it went below the minus 20 level, it sent the market much lower. In fact, there was even a signal to get out of the short position due to the indicator dropping into the range below the minus 80 handle as it becomes oversold. After that, the market then broke above the 50 day EMA, which would have more than likely told most traders that perhaps they don’t want to start shorting the market as it is a trend determining indicator.

Beyond that, the most recent low was higher than the one before which is also another reason to believe that the trend is changing. After that, you can see that the market broke above to higher pricing, pulled back towards the 50 day EMA and at the same time the Williams Percent Range indicator dropped into the oversold area. At the same time, the 50 day EMA has started the slope higher, offering a buying opportunity. After that, we had seen another opportunity presented itself by the next set of blue arrows.

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What moves forex prices?

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