The Williams’ Percent Range indicator is a technical indicator that works almost similar to the Stochastic Oscillator and is a faster version of the Stochastics. Meaning that this indicator is used to identify the overbought and oversold conditions in the market. The indicator was developed by Larry R. Williams and is used to compare the market’s close to the high/low range for a specified period of time and is plotted against a scale of 0 to – 100.
t is commonly understood that the %R reading over -80 marks an oversold condition while a reading over the -20 indicator marks an overbought condition.
The Williams Percent R indicator is found by default on most trading platforms or charting packages and conveys momentum in price and directional changes. It is considered a leading indicator as it depicts future price direction, thus it is also a directional indicator.
Constructing the Williams’ Percent Range Indicator
While the Williams’ Percent Range indicator is similar to the Stochastic oscillator, it differs in the fact the variable %R is included with key levels of -20 and – 80 representing the overbought/oversold conditions. Furthermore, the smoothing component found in the Stochastics Oscillator is not used in Williams’ Percent R indicator.
The Williams Percent Range Indicator is a leading indicator which represents future price movements for a security. In the picture below we see how the Williams’ Percent Range indicator shows the upward move in prices.
In the following illustration below, we compare the Stochastics Oscillator to the Williams’ Percent Range Indicator. If you notice, the %Range indicator is a lot more sensitive compared to the more smoothed Stochastics Oscillator. However, both the indicators do seem to plot the price movements in a similar fashion. The only difference is the way the bottom (or beginning of the uptrend) is plotted. While the %Range indicator plots the move as a sharp drip, the Stochastics Indicator shows a bottom flat.
Trading with Williams Percent Range
The Williams Percent Rage indicator is perhaps one of the most simplest of momentum indicators. In fact it is due to this simplicity that it is often overlooked by most traders who believe that the more complex an indicator is, the better it gets. At its simplest version, the Williams %R indicator can be used to identify overbought or oversold levels within a trend (buying on dips in an upward trending market for example). Due to its nature of being a leading indicator, the Williams %R can be used alongside RSI for example, in order to find minor price reversals before hand and having the same confirmed by the RSI within a bigger trend.