The Williams Percent Range, abbreviated as Williams%R, is a momentum indicator that illustrates where the most recent closing price is in relation to the highest and lowest prices of a specific time period.
Williams%R, as an oscillator, notifies you whether a currency pair is “overbought” or “oversold.”
Consider it a more sensitive and less popular form of Stochastic.
It delivers RSI-like sensations as a momentum indicator because it evaluates the strength of a current trend.
Traders utilize %R’s extreme levels (-20 and -80) for clues, whereas RSI employs its mid-point figure (50) to evaluate trend strength.
How to Trade Forex Using the Williams %R Indicator
Did you know that Stochastic and%R employ the same algorithm to determine a currency pair’s relative location?
The main difference is that Stochastic employs the lowest price in a time frame to show you a relative location, whereas%R uses the highest price to identify the closing price’s position.
In fact, if the%R line is inverted, it will have the EXACT SAME LINE as Stochastic’s%K line!
This is why Williams%R is scaled from 0 to -100, whereas Stochastic is scaled from 0 to 100.
A value of more than -20 indicates that the market is OVERBOUGHT.
A reading less than -80 indicates OVERSOLD.
A reading of overbought or oversold does not ensure that the price will reverse.
All “overbought” suggests the price is close to its recent highs.
The same is true for oversold. All “oversold” prices are at the lows of their recent range.
Determining Trend Strength Using %R
Williams%R’s sensitivity to volatile prices is useful when determining whether prices are sustaining their bullish or bearish momentum.
The daily chart of EUR/USD below shows that the pair attempted to prolong its uptrend but failed to hit new price and%R highs.
This suggests that prices aren’t reaching the upper end of their range as quickly as they used to, and that the bullish momentum may be fading.
In this scenario, the pair fell by 200 pips in a week!
Almost quickly, the price gathered enough positive momentum to push %R above its oversold levels.
However, while EUR/USD continues to produce red candlesticks, they are insufficient to pull Williams%R back to its prior lows.
Another drop in momentum?
Williams%R certainly thought so!
The bulls eventually took over and propelled EUR/USD up 775 pips in less than 30 days.
Next Lesson: How to Use ADX (Average Directional Index)