William% R indicator or William Percent Range (WPR) may be less known by traders in the forex world. The indicator is part of oscillator indicator group as one indicator that measures the strength of movement of the price of a currency pair.
Same as the indicators in other oscillator groups, this indicator has a display in the form of a value range between 0-100 and looks separate from the main screen. Usually, this indicator is set with a period of 14, which means that the indicator will measure the movement of the last 14 candlesticks.
The calculation formula from WPR is as follows:
Wiliams% R = (Highest Price − Lowest Price) / (Highest Price − Closing Price)
where the Highest Price is the highest price reached in the last 14 candlesticks, the Lowest Price is the lowest price reached in the last 14 candlesticks and the Closing Price is the closing price of the current candlestick.
The WPR calculation are as follows:
- The indicator will record the highs and lows of the last 14 candlesticks.
- On the 14th candlestick, note the closing price on the candlestick. Note also the highest and lowest prices for these 14 candlesticks, then enter them into the formula.
- On the 15th candlestick, we will automatically recalculate the new WPR value with the same assumption.
- And so on for the 16th candlestick, starting counting from candlesticks 2 to 16. For candlestick 17, WPR is calculated from candlesticks to 3 to 17.
William% R Indicator Display (below) on the MT4 Chart
What can be concluded from the WPR Movement?
This indicator can help traders whether the current price has entered the highest category during the last 14 periods, or has entered the lowest level in the last 14 periods.
When the indicator shows a number between -20 and 0, it means the indicator states the price is overbought and could potentially reverse direction. Conversely, when the indicator is between -80 and -100, it means that the indicator states that the price is oversold and has the potential to rise.
As long as the line moves above the value of -80, it means that there is potential for the price of the currency pair to go up, approaching the value of -20. As long as the WPR line is above -80 there is a possibility the price will continue moving upwards.
The same concept can be seen if prices move down. When the indicator starts showing a number below -20, there is a potential for a weakening to occur. As long as the WPR line is moving towards -80, during that time the trend will continue to fall.
Traders can also see what is called a strong trend, for example a strong upward trend when WPR is above the -20 level. WPR did not go down but remained in the range between -20 and 0 indicating an upward trend is continuing and there will be no reversal.
The same concept applies to the downtrend. As long as the WPR is below -80 and -100 then the bias will continue to fall for the price of the relevant currency pair. The new bias will change if the WPR line starts pointing up and out of the -80 upwards.
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Example of Entry Using WPR
- WPR is actually an indicator that shows a change in trend, so the entry should also follow this.
From the picture, we can buy when the WPR is below -80. This can be seen in the candlestick which also dropped.
- The Profit Target can be determined when the WPR touches the overbought area at -20 or between -20 and 0.
- To sell, the opposite action is done. Sell is done when WPR is above -20 and pointing down.
Stop Loss can be set with a distance of 30 pips, 50 pips or 100 pips depending on trading strategies and forex trading techniques.
- Stop Loss works if WPR turns out to give the wrong signal, for example when prices continue to move up or move down.
Difference Between WPR and Stochastic Oscillator
WPR uses the highest price approach in its calculations. In contrast, the Stochastic Oscillator has a range of values 0 and 100, using the lowest price of the candlestick in its indicator calculation. WPR corrects this by multiplying by -100. WPR and Stochastic Oscillator are actually almost the same indicators. The only difference between the two is how the scaling indicator is read by the trader.
Limitations of Using WPR
Overbought and oversold readings on the indicator do not mean that a reversal will occur. Overbought readings actually help confirm the uptrend, because a strong uptrend can be seen on this indicator in the form of a WPR line that is always above. Vice versa when the downtrend is strong, the WPR line will always be below.
Indicators can also be too responsive, meaning they provide a lot of false signals. For example, the indicator may be in oversold territory and start moving higher, but the price fails to do so. This is because the indicator only looks at the last 14 periods. In fact, the price may have just changed at the 15th candlestick or even has changed before the 14 candlestick which is the benchmark calculation of WPR.
Keep in mind that the system using this indicator does not always provide certainty of profit and success. Therefore the loss limit must remain and be installed at every time an entry is carried out in the form of SL. Indicators are only tools to see what is likely to happen, not tools to see the future that will happen.
Always obey the rules when making transactions, because most traders make the mistake of breaking the rules they made themselves. This rule includes not opening new positions if the existing ones are not yet closed regarding SL or TP. Do not get carried away quickly when experiencing losses or when making a profit. Keep doing the analysis with good and focused mind to achieve forex trading system that are yielding consistent profits.