RLW (%R Larry Williams)

Renowned author and commodity trader Larry Williams developed a trading formula called the %R to indicate overbought and oversold levels. In his original work, the method examined ten trading days to determine the trading range. After identifying a ten-day trading range, he figured out where today's close price falls within that range.

The system attempts to measure overbought and oversold market conditions. %R is always in the range of 100 and 0. Trading rules are simple. You sell when %R reaches 10% or lower and buy when it reaches 90% or higher.

These values are reversed from normal thinking, especially if you are using RSI as a trading tool. %R works best in trending markets, either bullish or bearish. Likewise, there is often a discrepancy between %R and the market. It is just another hint of the market's condition.

The number of periods used to calculate %R according to Williams may vary depending on the timeframe you are trading. A rule of thumb is that the indicator window should be half the cycle length (14 days are often used for the intermediate cycle).

Overbought and Oversold levels are normally set at -20 and -80.

Calculation

The indicator is very similar to Stochastic %K, except that Williams %R is plotted using negative values ranging from -20 to -80.

Below is the formula for calculating the %R indicator, which is very similar to the Stochastic oscillator:

%R = (High(i-n) – Close)/(High(i-n) – Low(i-n)) * 100,

where:

• Close — today’s closing price;

• High(i-n) — highest high over a number (n) of previous periods;

• Low(i-n) — lowest low over a number (n) of previous periods.

Main parameters

Ext WPR period – for selecting the period of Williams Percent Range that compares each closing price with the last trading range, 14 by default.

The indicator itself looks as follows on the chart: