As a trader, it is essential for you to come up with a formidable trading strategy that will set you from the rest in making you a success in this unpredictable sector. In order to boost their strategies, traders incorporate many tools in their approach in order to strike it big. One of the most appreciated tools that traders have been known to use are the trading indicators.
The trading indicators work hand in hand with charts and they are tasked to show the current market situation as well as provide the prediction factor to the trader. This prediction is what guides the trader in making a great decision pertaining to the bearing he or she will take.
William % R Indicator
Among the indicators that a trader may come across during his or her trading exploits is the William’s percent range indicator also known as the William% R indicator. This indicator is a technical analysis oscillator meaning it moves between two extremities in an oscillation-like motion. It is named after its developer, Larry Williams who was a publisher.
This indicator is great for indicating overbought and oversold conditions, momentum indications and also for checking out on trends. The Williams% R indicator fluctuates between the values of 0 to 100 and will show how the prices compare to either the highest or lowest in the trading period. This makes it a great indicator to use when checking on overbought or oversold levels in the market at a particular trading period. This trading period is mostly a 14-day trading period.
With this indicator, the -100 level signals an oversold condition where the prices are sort of low due to the presence of many sellers. This is a great price for the trader to buy the financial instrument he or she is interested in. The 0 level indicates an overbought level in the market at the time. In such a level there are many buyers for the option in question. This is the right signal for a trader to sell due to the favorable prices. The indicator has a range of 20 as a signal for each of these levels. This means entry to the overbought level can be indicated by levels from -20 and below while for an oversold condition is at -80 and above. These values are normally on a negative oscillator scale.
The Williams % R Formula
The Williams% R has a formula which is as follows
Williams% R= ((highest high – close)/ (highest high- lowest low)) *100
The highest high means the highest price reached during the trading period while the lowest low indicates the lowest price the prices fell during the same trading period.
This indicator is important for showing trends and will provide a good analysis tool that will enable the trader to know of how the market is fairing. Also as it shows that the trading option is trading above or below its expected range it may give the trader the notion of whether to stick to it or adopt another option that the trader will feel comfortable with in dealing.
The Williams% R indicator is a good indicator and it owes this to its simple outlook which makes it very easy to understand and grasp. For those with a forex trading account, this will be a good indicator to start with in your trading exploits.
Limitations Of The Williams% R Indicator
Despite it being such a great trading indicator, the %R indicator is prone to certain shortcomings, for example, it is not clearly indicative of the market range situation and will also not indicate the reversal factor. Both of these two parameters are key in a trader who is keen in the trades he or she makes.
This is a good trading indicator that will help a trader by fusing it into a great trading strategy. It gives a picture of the state of the market of an option in relation to its overbought and oversold conditions which are indicative of a trend to be followed. It is a get indicator to start with owing to its simple outlook.