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Williams' Percent Range is a technical indicator of oscillator type showing overbought/oversold status on market. The first time Williams' Percent Range was described in 1973 by a famous trader Larry Williams. The indicator itself is very close to Stochastic Oscillator, but unlike Stochastic, WPR is not smoothed over with the help of moving average and has a reverse sale in order to not deprive sense of overbought (at the top) and oversold (downwards) zones.
Measurement:
where:
CLOSE (i) — close price;
MAX (HIGH (i - n)) — High price for n periods;
MIN (LOW (i - n)) — Low price for n periods;
The formula shows that WPR gives the level of Close price of current period against High-Low range for a certain period. Indicator's values lay in the range from 0 to 100%. Zone -80%-100% is the oversold zone, from 0 to 10% - the overbought zone.
Let's have a look at the indicator on price chart. Parameters are standard (period =14)
Pic. 1 – Williams Percent Range (14)
Let's figure out how to read the indicator and which trading signals it sends.
Overbought/oversold zone
When WPR value enters oversold zone (-80%-100%), it means that Close price is underestimated against a certain trading range (period). If indicator's value is in overbought zone (from 0% to -20%), the price is respectively overestimated. But it should be remembered that under trend movement the price can be in overbought zone for a long time and grow, or be in oversold zone and decline. Therefore, it is very important to define beforehand, in which phase market is – trend or flat.
Divergence/convergence
As in the case with Stochastic oscillator, bullish divergence and bearish convergence are distinguished by Williams Percent Range. Here they occur less often, but signal is much stronger.
Bullish divergence occurs, when price accomplishes a new maximum, %R is located in overbought zone and cannot confirm a new extreme point.
Bearish convergence occurs, when price accomplishes a new Low level, %R is located in oversold zone and cannot confirm a new extreme point.
Signals for trend
WPR is good in showing signals for Forex trend. The most important task is to define a tendency beforehand. The indicator will then show, in which points you can add at a profit.
When WPR enters oversold zone under ascending trend, it will signalize for purchase. When WPR enters overbought zone and trend is descending, it will be an alert for sale.
Let's consider an example of such signals for descending trend.
Conclusion
Williams Percent Range does not differ much from other oscillators of technical analysis. Its main disadvantage is an immediate response to price fluctuations and slight “noise” of market can lead to a lot of false signals. Advantages of this indicator include good signals for trend following to retracement, and rather good signals sent under flat movements. We cannot ignore that it is possible to make the indicator more sensitive by decreasing period or, on the contrary, make it slower for reading more significant moves. Also WPR can be used as filter in combination with other technical instruments. Anyway, choice is always up to a trader.
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