If you want to be able to gauge whether the market is overbought or oversold, one popular indicator you can add to your charts is the Williams' Percent Range, also written as Williams' %R. Sometimes you will see it without an apostrophe as well: Williams' Percent Range.
This guide will explain to you exactly what the Williams' Percent Range indicator is, how it is calculated, and how you can plot it on your charts and use it in your Forex trading.
The Williams' Percent Range indicator is classified as a momentum indicator. When you plot it on your chart, it will appear below, showing you a line that bounces between two levels. It looks similar to the RSI indicator.
You can use the Williams' Percent Range indicator to trade reversals or to establish trend strength.
Key point: The Williams' %R is a momentum indicator.
Here is the formula for computing the Williams' %R indicator:
When you plot the indicator on your chart, you will select a period. By default, this is often 14 days. The formula looks at the highest price and the lowest price within that time period along with the most recent Close.
Thankfully, you do not need to do this calculation yourself. Your Forex software will do all the math for you.
Key point: The formula for this indicator helps you understand how price compares to the highest high within the period you selected.
The Williams' Percent Range indicator shows overbought and oversold market conditions.
The two lines are -20 at the top and -80 at the bottom.
When you see the line moving above -20, this indicates that the market is overbought.
When you see the line moving below -80, this conversely indicates that the market is oversold.
Key point: You can see when the market is overbought or oversold by looking at whether the Williams' Percent Range indicator has passed above -20 or below -80.
You can plot the Williams' Percent Range indicator on your charts in MetaTrader 4 in a few easy steps.
This is it! Check below the chart, and you will see the indicator. Now you can use it to trade.
Key point: In just several clicks, you can plot the Williams' %R indicator on your Forex charts.
You can use the Williams' Percent Range indicator to help you spot trend reversals. But there is an important caveat regarding the timing of your entries.
You might think the moment you see the line in the indicator crossing below -80, you should buy since conditions are oversold. Likewise, you might think that the instant the line crosses above -20, you should sell since conditions are overbought.
But actually, you should wait for price to pass back into the "normal" range from the overbought or oversold area before you get into a trade.
There are also a couple of ways you can use this indicator during a trend.
Also:
So, if you determine that the trend is still strong, you could consider trading with the trend. If you determine that the trend's momentum is decreasing, you could consider exiting (and maybe even reversing your position).
Key point: You can use the Williams' %R indicator to trade reversals or trend continuations, depending on the context.
You have the basic idea now for how to use the Williams' Percent Range indicator. Below are a few things to keep in mind as you trade:
Key point: The Williams' Percent Range indicator can help you figure out what is taking place in the markets. But it is difficult to get a firm understanding of what is happening with this indicator alone. Context and confluence can help.
The Williams' Percent Range can help you spot reversals and continuations in Forex.
The Williams' %R indicator is a useful oscillator for identifying when market conditions are overbought and oversold.
But whether it is telling you to trade with the trend or get in on a reversal can be challenging to interpret.
Look up trading methods that use Williams' %R or try creating your own, incorporating additional indicators for confluence.
You can discuss the Williams' Percentage Range indicator and its application in Forex trading on our forum for traders.
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