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. The trading rules are
simple. You sell when Percent R reaches 10% or lower and buy when it reaches
90% or higher.
Please note these values are reversed from normal thinking, especially if you
use the Relative Strength Index as a trading tool. The Percent R works best in
trending markets, either bull or bear trends. Likewise, it is not uncommon for
divergence to occur between the Percent R and the market. It is just another
hint of the market's condition.
FutureSource permits you to specify the length of the interval for the study.
Some technicians prefer to use a value that corresponds to 1/2 of the normal
cycle length. If you specify a small value for the length of the trading
range, the study is quite volatile. Conversely, a large value smoothes the
Percent R, and it generates fewer trading signals.
- Period (10) - the number of bars,
or interval, used to calculate the study.
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. FutureSource examines the prices for the AST n intervals
to find that trading range. Once those values are determined, the general
formula for the Percent R is as follows:
%Rt = ( (Highn - Closet) / (Highn - Lown)
) * 100
Assume the market is Treasury Bills. The high
for the past ten trading intervals is 9275, and the low is 9125. The closing
price in the current period is 9267. If you substitute those values in the
equation, you get:
- %Rt is the percent of the range for the
- Highn is the highest price during the
past n trading periods.
- Closet is the closing price for the
- Lown is the lowest price during the
past n trading periods.
- n is the length of the interval.
The computations continue with the software
continually checking for a new high or low for the length of the interval
specified. The Percent R can be a volatile indicator. It fluctuates quickly
%R = ( (9275 - 9267) / (9275 - 9125) ) *
= (8 / 150) * 100
There is risk of loss in futures
trading. Past results are not indicative of future results.