Williams Percent Range Strategy - Learn How That Works

Once a long-term trend or a sideways range is determined for an asset price, Forex traders usually start seeking attractive levels to enter the market. Whether is it a bounce-by-trend pattern or a test of support/resistance level inside consolidation range, a currency pair starts showing technical signs of overbought or oversold conditions. Finding those moments is crucial for profitable trading, however, a powerful and effective technical tool is required to indicate them. In most cases, technical analysts use fast oscillators but some of them have quite a large number of false signals. Several widely used oscillators such as Stochastic or RSI are not sensitive enough to show price fluctuations for short-term intraday trading. Williams Percent Range indicator fits all of the requirements mentioned above, reflecting all of the price action and showing the best entry points.

What is Williams Percent Range?

In the early 1970s, a commodity trader Larry Williams invented his own version of an oscillator. He took the relation of the latest close price to highest and lowest rates within a given period as the base for the mathematical formula. As a result,
Williams %R received a more sensitive oscillator than Stochastic with the same mathematical approach. The main difference is that Stochastic takes into account the lowest price to compare the current momentum, while Williams % r measures the highest price in its calculation.

How does Williams %R look like?

The indicator is placed in a separate window below the price chart. Like any other oscillator, its shows overbought and oversold levels with the only exceptions that its values are ranging from 0 to -100, whereas overbought level comes at -20 and oversold at -80. Below is a screenshot of the EUR/USD daily chart with the Williams %R indicator.
Williams Percent Range Strategy - Learn How That Works

What are the best settings for Williams %R oscillator?

Overbought and oversold thresholds are quite informative and effective in terms of showing the market’s momentum. Therefore, there is no sense to change them when it comes to choosing the best settings for Williams Range. The period is crucial for profitable performance and there are several tips on how to choose it. As long as the most powerful advantage of the oscillator is in its sensitivity, it's not recommended to select large periods more than 25 bars as during long-term fluctuations market conditions could be changed several times in different directions. Forex intraday traders are keen on taking advantage of quick and frequent entries thus they need a fast oscillator with a short-term period. Therefore, the range of the period has to be around the default parameter of 14 bars. Some traders prefer using figures from the Fibonacci row and 13-bars period is the closest one to the default settings. Long-term and swing Forex traders might consider using 21-bars as the beat period for Williams Percent R as they are aimed to ignore small fluctuations to catch strong trends.

If you like this strategy, you might also be interested in this Heiken Ashi Trading Strategy

What does William %R show?

The oscillator has several patterns pointing to a high likelihood of trend’s reversal. The main idea is that when an asset is trading above the highest high in a given period, the oscillator is showing value nearing 0. Conversely, when Williams Percent Range has a reading close to -100, the price of an asset is trading below the lowest low.
Besides that, there are several market conditions, which are reflected in the indicator’s window:
  • Overbought and oversold conditions’;
  • Trend’s direction;
  • Market’s momentum and relative power;
  • Potential reversal pointing to buy or sell signals.

How to use Williams Percent Range Forex Trading Strategy?

Before diving deep into trading conditions to buy or sell an asset using Williams Percent Range Strategy, it’s worth reminding that trading decisions have to be made in accordance with long-term trends. As long as Williams %R has quite a short period of analyzing past performance, it’s recommended pricing analysis on longer time frames such as daily or four-hourly charts when trading the 1-hour timeframe. In addition, such trend indicators as Ichimoku Cloud or MACD might be useful to determine the trend’s direction. Forex traders should avoid standing against the long-term trend even if oscillators point to overbought conditions during an uptrend and oversold zones during a downtrend. At the same time, Williams Percent R shows perfect entries when it comes to by-trend bounces and retracements in the buy-lows and sell-highs trading approaches.

Williams %R Formula
(Highest Highn – Closecurrent period) ÷ (Highest Highn - Lowest Lown) x -100

Examples of conditions for long-term and short-term positions

Conditions for long positions during an uptrend after a bearish retracement:
  • A currency pair is in a sustainable uptrend;
  • The rate is bouncing down having a bearish retracement;
  • Once Williams %R crosses the oversold level of -80 and bounces back up quickly open long positions;
  • Set stop-loss order 10-20 pips below the recent lowest rate;
  • Take a profit when Williams %R Indicator gets out of the overbought territory, crossing the level of -20 from above;
  • Wait for another entry opportunity.

Williams Percent Range Strategy - Learn How That Works

Conditions for short positions during a bearish trend after an upside correction:
  • A currency pair performs a stable downtrend;
  • The rate is bouncing up having a bullish correction;
  • Once Williams %R crosses the overbought level of -20 and bounces back down fast open short positions;
  • Set stop-loss order 10-20 pips above the recent high;
  • Take profit when Williams %R gets out of the oversold territory, crossing the level of -80 from below;
  • Wait for another entry opportunity.

Williams Percent Range Strategy - Learn How That Works

Entry conditions in a sideways range

When an asset charts a directionless price action, bouncing up and down in a sideways consolidation range, Williams %R points to entry opportunities in both directions. Such a trading technique allows a trader to benefit from both long and short positions. Two possible patterns might signal a reversal and entry point. First, the same bounce from oversold or overbought level occurs as mentioned in two previous examples. Second, the oscillator’s line has two consecutive lower peaks above -20 (for short positions) or higher lows below -80 (for long positions). In this case, the middle level of the indicator’s value (-50) has to be monitored as a confirmation to continue holding position when Williams %R crosses it or close it manually in case if the oscillator bounces back from it.
Williams Percent Range Strategy - Learn How That Works

Conclusions - Williams %R Indicator

Having a mathematical formula of a traditional oscillator, Williams %R is much more sensitive in terms of pointing to oversold/overbought conditions, as well as reversal trading signals. The most effective performance is achieved when trading with the short-term approach, frequent entries and tight targets on intraday charts. The indicator shows perfect entry opportunities during by-trend bounces, technical retracements in a strong trend and reversal conditions in sideways consolidations. However, for the most effective result, additional technical tools have to be used. Another disadvantage of the indicator is that it’s not useful in showing moments when a long-term trend is getting exhausted and the direction could be changed. Therefore, it’s recommended avoiding counter-trend positions when using the Williams Percent Range Trading Strategy.
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