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How to use the Williams %R Indicator in Forex trading

What is the Williams Percent Range (Williams %R) Indicator? Overview, Definition, Formula, Structure, Uses and Strategies of the Wm%R indicator.

Hello friends. Over time, those involved in financial markets trading have come to understand what Technical Analysis is and why it’s necessary. As a part of Technical Analysis, indicators attract special attention. Thus, in Forex trading, we use indicators as tools for technical analysis to analyze price movements. Indeed, indicators are our allies in identifying trends, determining entry and exit points, measuring price changes, and establishing support and resistance levels. In this article, we will discuss the “Williams %R” indicator. The “Williams %R (Williams Percent Range)” indicator, also known as Wm%R for short, was developed by American trader, author, and technical analyst Larry Williams. Larry Williams is recognized for creating various trading strategies and technical analysis tools in the world of finance, gaining particular attention for his successes in the futures market. While developing this indicator, Williams aimed to determine where price movements were in relation to the highest and lowest prices over a specific period. In doing so, he aimed to better understand overbought and oversold conditions and make appropriate trading decisions. Wm%R is a leading momentum and trend indicator used to identify overbought or oversold conditions.

Calculation of Williams Percent Range (Wm%R)

Williams %R, also referred to as Williams Percent Range or Wm%R, is calculated using a rather elementary mathematical formula. This calculation begins by subtracting the most recent closing price from the highest price level within a specific time period. Next, the difference between the highest and lowest price levels during the same period is calculated. This resulting difference is then processed using a specific formula. As a result, the obtained value is multiplied by -100 to yield a negative percentage value. Here is the formula for these calculations:

       %R = -100 x (Highest Price - Last Closing Price) / (Highest Price - Lowest Price)

Typically, the standard lookback period recommended frequently by Larry Williams is 14. This period is based on gathering price data within a specific range for the indicator’s calculation.


The Structure of Williams Percent Range (Wm%R) Indicator

The Williams Percent Range (Wm%R) indicator is a type of negative oscillator that oscillates between -100% and 0%, meaning it takes values between -100 and 0. Within this range, usually, values below -80 indicate oversold conditions, while values above -20 indicate overbought conditions. In this indicator, a value of 0% represents a close near the highest price within a specific period, while a value of -100% represents a close near the lowest price within that period.

Trading with Williams Percent Range (Wm%R)

One of the needed uses of the indicator is that it helps to identify possible turning points. We can consider it as a signal indicating the end of an upward trend and the possibility of entering a downward trend, or vice versa.

For the Williams %R (Wm%R) indicator, the value of -20% represents the overbought zone, while -80% represents the oversold zone. In this context, when the Wm%R indicator rises above the -20% level, it’s expected that the asset is overbought and might start moving below this level, which could lead to a decrease in its price. In such situations, we usually consider giving a Sell order after confirming the signal with other technical analysis tools. Conversely, when the indicator falls below the -80% level, it’s assumed that the asset is oversold, and the price might start moving above this level, suggesting a likely increase in its price. In such cases, we often place a Buy order. See for example the EUR/GBP chart below. One important thing to note is that since Williams %R is a leading indicator, the strength of signals generated for overbought and oversold conditions becomes less reliable when they appear during a strong trending process. Therefore, especially in strong trends, instead of using -20% to -80% as reference values for overbought and oversold signals, we might opt for -10% to -90% values to achieve more dependable results.

Trading overbought and oversold zones, positive and negative divergences in the Forex market with the Williams Percent Range (Williams %R) Indicator
Overbought and Oversold Zones on the Wm%R Indicator

In the Wm%R indicator, the price of an asset can move away from the overbought or oversold zone and return to its previous zone before reaching the opposite zone. This is called an “oscillation error” or “swing failure”.  If it departs from the overbought zone, moves towards the oversold zone, and then returns to the overbought zone without reaching the oversold zone, it suggests weakness in the current uptrend and the possibility of an upcoming downtrend. This situation presents a selling opportunity. If the Wm%R departs from the oversold zone, moves towards the overbought zone, and then returns to the oversold zone without reaching the overbought zone, it suggests weakness in the ongoing downtrend and the possible start of an upcoming uptrend. This scenario provides a buying opportunity.

We can also use the Wm%R indicator to identify divergences, just like with other indicators, to make trades. In a positive divergence, when the price movements of a given financial asset create lower lows, the Wm%R creates higher lows. This situation suggests that the current downward trend is losing momentum and a prospective upward trend might begin. If this positive divergence occurs in the overbought zone, it becomes even more reliable and offers an excellent buying opportunity. Conversely, in a negative divergence, when the price movements of the relevant asset create higher highs, the Wm%R creates lower highs and if it’s in the oversold zone, it becomes even more significant. This situation provides us with an indispensable Sell opportunity. See the EUR/GBP example chart above.

Always keep in mind that. When trading in financial markets, any single technical indicator should not be used alone. This caution applies to the William %R indicator as well. The Forex market is a highly liquid financial market. The rapid reflection of news and events in market prices carries a high level of risk due to sudden price fluctuations. In this situation, relying solely on one indicator for trading can lead to misleading outcomes, including the Wm%R indicator. When trading in financial markets, market conditions and other factors should be taken into account, and every trading decision should be considered carefully.


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