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The Williams Percent Range Indicator for Metatrader

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 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.

 

Setting up the Williams Percent Indicator on Metatrader

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.

The Williams Percent Range indicator in action

 

 

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.

 

Williams Percent Range indicator in a trend

 

 

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.
 

Williams Percent Range indicator with a 50 day EMA

 

 

Some limitations and unique qualities of the indicator

The Williams Percent Range will represent the level that the market closed versus the highs of the range that the indicators looked back, normally 14 days. Having said that, it’s the exact opposite of the fast stochastic oscillator, which moves between 0 and 100. In that indicator, the measurement is from the lows of the look back range. In other words, it’s the exact opposite of that indicator and therefore they are somewhat interchangeable. 


However, there are certain limitations that you need to be aware of when it comes to using the Williams Percent Range indicator, and due to this, you need to use other indicators to be relatively comfortable using it. It does tend to be a bit overly responsive, meaning that it can give false signals, and this is why it’s normally only a piece of a system, not a complete system by itself. Some people will use a longer-term setting to slow down some of the false signals, but at that point it becomes a guessing game as to when it becomes responsive enough. 


This isn’t to say that the indicator can’t be used, just that it can’t be used by itself. Furthermore, a lot of traders will not only use a moving average with the Williams Percent Range indicator, but also set up a Williams Percent Range strategy by using it with the exponential moving average, or EMA and perhaps some type of candlestick analysis. For example, if you get everything lined up and get a hammer or a shooting star, that only adds more credence to any type of signal that you may be looking at. 

 

In short: 

  • The Williams Percent Range indicator tells you when the markets are going back to normal momentum

  • The Williams Percent Range indicator does tend to give off a lot of quick signals

  • The Williams Percent Range indicator can be used in a trend or consolidation

  • The Williams Percent Range indicator needs to be used with other indicators 

 

Because of the limitations, the Williams Percent Range indicator can be a part of the system you use to trade Forex, but, quite frankly, it’s not reliable enough to use by itself to generate your trade ideas. In fact, Larry Williams didn’t use the oscillator by itself for trading, and used it in congruence with other indicators. And because the author of the indicator didn’t use it as a standalone system, neither should you.

Final thoughts about the Williams Percent Range

The Williams Percent Range indicator is an indicator that is an oscillator like many others out there, and therefore will measure both overbought and oversold conditions. However, it's a little bit different in the sense that you don’t take the trade as soon as the indicator light enters the overbought or oversold condition, but you take the trade as it returns.

 

The idea is that the market will return to the norm. After all, it’s much like using a moving average to determine whether we have gone too far from a standard move. As the market breaks back into the range between minus 20 and minus 80, then you get the signal in this indicator. In that sense, it is a little bit different.

 
All of that being said, the market is likely to drift further to the middle of the indicator, but at this point you need to have a little bit of help in order to confirm that signal. The reason that this indicator can be trouble is that it measures a relatively small range of candlesticks on the look back for the highs, but that can be adjusted. The catch of course is that you then need to figure out what the optimal setting is. At this point, nobody really has come up with a concrete answer to that. With that being the case, it’s likely that you simply need to use it with other indicators in order to smooth out some of the false signals. 


As you have seen in this article, using a moving average to determine trends can get you to avoid some of the potential false signals that come out, and therefore it’s likely that the trading results will be much better over the longer term. By adding price action, that can help quite a bit as well.

 

Keep in mind that as with all indicators, it does tend to do better on higher time frames, because it takes into account much more data and trade results in order to fire off signals. By using a demo account, you can see what indicators and settings will work out best for you.

 

 

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