Larry Williams – a famous commodities trader of our current time. Father of Michelle Williams (swoon ❤ ❤ <3) who while being a famous actress is also a successful trader in her own right. Both father and daughter have won numerous competitions and Larry won a competition in 1987 in which he turned $10,000 into $1,100,00 within a year time period.
Williams borrowed the %R calculation from Dr. George Lane and refined it into the version we use today.
Like the Stochastic (if you haven’t read that section, I recommend you do) the %R (Percent Range) is a RANGE BASED indicator. By this I mean that the indicator has a HIGH and a LOW which is defined by the period you set the indicator to. IF you set the indicator to 21 days, the indicator will use the HIGHEST HIGH and LOWEST LOW in the last 21 days. The rest of the calculation is meant to determine where the current close is within that range.
Taking into consideration that it is range bound, that translates into
0 = the highest high and -100 = the lowest low.
The calculation is simple. Such as the one for the STOCHASTIC.
%R = (Highest High – Close)/(Highest High – Lowest Low) * -100
Larry Williams wrong about his use of the %R in a 1979 book published by Windsor Books, entitled “How I Made One Million Dollars …Last Year …Trading Commodities” Mr. Williams uses a 10 day period in his evaluation of the indicator.
About the indicator he writes “The index is a simple measure of where today’s closing price fits within the total Range of the last ten days.” Again providing emphasis that this is not a momentum indicator but a Range indicator.
“Plot this daily reading on your chart paper.” writes Mr. Williams (in 1979 before our charting software), “It will, naturally, range from a Yang, (overbought reading at 0%) to Yin, (an oversold reading at 100%). Generally speaking readings below 95% give a buy indication — during bull markets. A reading above 10% give a sell signal during bear markets.”
This is where people make the classic mistake. This is where the instructors on YouTube fail you. You need a definition for “during bull markets” and “during bear markets”.
Mr. Williams continues “The preceeding paragraph is the essence of my technical system. The %R index will not work if you insist on acting on the buy signals during a bear market.” (or sell signals during a bull market), “Now you realize why I have, in earlier chapters, stressed so strongly the necessity of isolating the dominant bull and bear markets. Once you’ve done that, all you have to do is track price movements with %R and WAIT for the signals telling you it’s time to start positioning the commodity according to the fundamental situations we have discussed.”
SO…How does Mr. Larry Williams define a bull market? With a 10 week moving average. Prices are above – Bull Market. Prices are below – Bear Market. Returning to the constantly said statement of “If above the Trend Moving Average, Long only. If below the Trend Moving Average, Short only.”
Mr. Williams even has a few rules he uses when the indicator enters a “bad” period.
“If prices have recently undergone an extremely rapid rise, exhibiting signs of a technical blow-off (that means prices will stage a wild, upside move then immediately limit down without trading) wait for a buy signal from the %R index. You are through waiting and ready to buy when:
- %R has hit 100%
- Five trading days have passed since the 100% reading was hit
- %R again falls below 95%
“Once those three criteria are met, it’s time to once again begin acting on the %R signals, assuming you are buying long in a bull market.
“Not all signals will be correct, I have constructed no perfect indices. The Holy Grail is yet to be found. Because of that, I use a few other tools to confirm the %R and I use stops as my ultimate protection. Yet, %R remains the best timing tool I have ever used for determining overbought or oversold markets.”
How I interpret the %R is that above -37 is BULLISH activity. The prices are in the upper 37% of the TRADE RANGE. When below -63 it is BEARISH activity. The prices are in the lower 37% of the TRADE RANGE.
In between the -37 and -63 it is trading around the MID of the range. This I consider to be neutral/indecisive/undefined since it isn’t moving either UP or DOWN.
While I am a fan of using HL2 for many indicators, since a close can skew the actual movement of the bar and doesn’t take into consideration the range of the bar. %R IS a indicator where CLOSE is very necessary. The reason is, you are trying to determine the relationship of the CLOSE to the RANGE.
There is NO overbought/oversold with a TREND. It will continue to move as long as it has the strength to continue. STOCHASTIC and %R are not momentum indicators.
One suggestion in trading STOCHASTIC %R is when the value maxes out or nearly maxes out. While again, this doesn’t indicate “OVERBOUGHT”. What this indicates is the upper bound of a TRADE RANGE.
In the example above with Juniper. The %R nearly maxes out at the first arrow. While the price for the next couple of days continued to push higher. the %R diverged away. This divergence was suggestion that a reversal may occur shortly.
The second arrow nearly maxed out, prices drifted higher while it went into divergence. The %R then pushed up one more time into a near max position before drifting down lower. Both Williams and Lane comment that this usually indicates a reversal is within the next 2 – 5 days.
But I will get into more “HOW TO TRADE” these in a different section of this site.
In Summary. Above -37 is BULLISH TREND territory, Below -63 is BEARISH TREND territory. Between the two is mid range and NEUTRAL.
Orion Price Prophet 
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