How to Use Williams Indicators for FOREX

Forex traders like Williams indicators' ability to foretell reversals.
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The Williams Percent Range belongs to the oscillator family of technical indicators, which seesaws in value between 0 and -100 over the course of time. Visually, the Williams indicator is a single fluctuating curve with banded lines drawn across at the -20 and -80 value extremities. Traders view the Williams as a leading indicator and harbinger of price changes on the horizon.

What It Is

Mathematically, the Williams Percent Range indicator is expressed as follows: %R = Latest Closing Price subtracted by the Highest Bid Price over the last n periods, all divided by the Highest Bid Price subtracted by the Lowest Ask Price over the last n periods, and that result multiplied by 100. "N" is usually set for 14 days.

How it Works

The Williams indicator may be useful to Forex traders in identifying overbought and oversold areas, potential turning points and potential trend weaknesses. There are specific tip-offs in each case to alert you to these events. For example, when the indicator goes to -20, the currency pair in question may be overbought; if below -80, it may be oversold. Taking the above overbought or oversold boundaries, if the Williams indicator crosses the overbought boundary from above, it could signal a sell opportunity. Crossing the oversold boundary from below, Williams points to a buy opp. Williams spots uptrend weakness if the price goes up but the indicator doesn't.

Example of a Trade

To illustrate Williams %R in action, place the Williams indicator graph directly below that of current price action for a currency pair. To determine the entry point of the trade, watch the Williams curve to see where it crosses the lower boundary, or the -80 value. Look for additional confirmation from other technical indicators before getting in. The Smoothed Moving Average is a curve that would generate a signal for entry if it flattens before changing direction. Execute a buy order at that point, but no more than 2 percent of your account. Exit at the point where Williams rises above the upper extreme of -20.

Example: Trending Markets

Data provider Incredible Charts suggests extending the default time frame for Williams Percent Range when it comes to trending markets. Usually the default is 14 days, but a longer interval may be needed to smooth volatility and avoid false signals. It advises going long, or buying, when the Williams indicator falls below the oversold level and rises above -50. When the indicator rises above the overbought level then drops below -50, you should sell, or go short. Incredible Charts recommends waiting for this reference point as clear evidence of a reversal before jumping in.

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