Education / Indicators / Percent R


Noted author and commodity trader, Larry Williams, developed a trading formula called the Percent R. In his original work, the method examined ten trading days to determine the trading range. Once the ten day trading range was determined, he calculated where today's closing price fell within that range.

The system attempts to measure overbought and oversold market conditions. The Percent R always falls between a value of 100 and 0. You sell when %R reaches 20% or lower (the market is overbought) and buy when it reaches 80% or higher (the market is oversold). However, as with all overbought/oversold indicators, it is wise to wait for the indicator price to change direction before initiating any trade.

Calculation

You must first determine the highest high and lowest low for the length of the interval. This is the trading range for the specified interval. Once those values are determined, the general formula for the Percent R is as follows:

Percent R = (MAX (HIGH (i - n)) - CLOSE (i)) / (MAX (HIGH (i - n)) - MIN (LOW (i - n))) * 100

Where
CLOSE(i) - is the closing price for the current period,
(HIGH (i - n)) - is the highest price during the past n trading periods,
(LOW (i - n)) - is the lowest price during the past n trading periods.