The Williams Percent Range is a popular and easy to use Oscillator indicator. As the name may suggest the Indicator was first created by Larry Williams. The Indicator has similarities to the more widely used Stochastic Oscillator created by Dr. George Lane though I would contend that the the Williams Percent Range is simpler and easier to implement. The Indicator is often used to determine overbought and an oversold conditions which can be used to predict possible reversals.
The Williams Percent Range is classified as an Oscillator in virtue of the fact that the value of the indicator fluctuates between 0 and -100. Values between -20 and 0 are taken to be a signal that the particular instrument has been overbought, suggesting there may be a price reversal and that the trader should sell that particular instrument. While values between -80 and -100 are commonly taken to be indicators that the instrument in question has been oversold, suggesting that the particular instrument is about to increase in value and is taken as a signal to buy.
The majority of good trading platforms or trading software’s will calculate the Williams Percent Range for you. But it is perfectly possible to calculate the Williams Percent Range yourself and this may act as useful research if you wish to determine whether the indicator is reliable when applied to certain instruments. To work out the Williams percent range simply do the following :Firstly, decide on a time period. The standard time period being 14, N then counts for the previous number of periods in the following equation. Williams Percentage Range= 100* (HN-CCP)/(HN-LN). CCP is the Current Closing Price. LN is the lowest price in the last ‘N’ periods. While HN is the highest price in the last N periods
The Williams Percent Range is composed of one single fluctuating line. Though it is often used in tandem with another indicator, most typically a moving average. The Williams Percent Range is often viewed as leading indicator as many believe it can help one predict when a price reversal will occur. This had made the indicator popular with many traders, though a lagging moving average is often added in order to prevent the trader being deceived by false signals which can be a real risk when one is using Oscillators, which are particularly vulnerable to whipsaw movements.
The above graph (click to enlarge) shows a standard 14 Williams Percent Range as applied to Facebook. Here you can see a large rise in price after the indicator shows the stock has been oversold. Later on the Williams Percentage Range indicates that Facebook may be overbought which leads to a sharp drop in Facebook’s share price. Later on the Williams Percent Range suggests that Facebook’s shares are very much oversold, but however this is followed by very little upward price movement.
As with all indicators the Williams Percent Range is not anywhere near 100% reliable, but learning how to use the indicator can add another powerful tool to a traders arsenal.