Williams Percent Range, also called Williams% R, is a momentum indicator that shows where the last closing price is in relation to the highest and lowest prices of a given time period.
As an oscillator, Williams% R tells you when a currency pair might be “overbought” or “oversold.”
Think of it as a less popular and more sensitive version of the stochastic.
As an indicator of momentum, it also provides RSI-like vibrations as it measures the strength of a current trend.
But while RSI uses its midpoint figure (50) to determine the strength of the trend, traders use the extreme levels of% R (-20 and -80) as clues.
How to trade Forex using the Williams% R indicator
Did you know that Stochastic and% R use the same formula to indicate the relative location of a currency pair?
The only difference is that Stochastic shows you a relative location using the lowest price in a time range, while% R uses the highest price to identify the closing price position.
In fact, if you reverse the% R line, you will have the SAME EXACT LINE as the% K line of the stochastic.
This is why Williams% R uses the 0 to -100 scale, while the Stochastic scales from 0 to 100.
A reading greater than -20 is OVERPURCHASED.
A reading below -80 is OVERLOOKED.
An overbought or oversold reading does NOT guarantee that the price will reverse.
Any “overbought” means that the price is close to the highs of its recent range.
The same goes for overselling. Any “oversold” means that the price is close to the lows of its recent range.
Determination of trend strength by% R
The Williams% R sensitivity to volatile prices is useful when you want to know whether prices are maintaining their bullish or bearish momentum.
On the EUR / USD daily chart below, you can see that the pair tried to extend its uptrend but failed to hit a new price and% R highs.
This means that prices are not reaching the upper end of their range as quickly as they did before and that the bullish momentum could be losing steam.
In this case, the pair ended up dropping 200 pips in one week!
Almost immediately after that, the price gained enough bullish momentum to push %R above its oversold levels.
But although EUR/USD is still poppin’ up red candlesticks, they’re not enough to drag Williams %R back to its previous lows.
Another loss of momentum?
Williams %R sure thought so!
Turned out, the bulls DID take over and pushed EUR/USD around 775 pips higher in less than 30 days.
Now that’s good oscillating right there. No wonder superfans call Williams %R as “The Ultimate Oscillator!”