Williams %R Indicator… The History Behind It

Before there was RSI, before there was MACD, before there was ADX… there was…

Williams Percent R ( %R )

Long ago in a far-off and different Galaxy there were no computers and market quotes were only in brokerage firms.  NYSE daily volume made headlines when it topped 10,000,000 shares a day. Such heavy trading volume forced the market exchanges to close one day a week… Out of this came forth Larry Williams Percent R.  Williams %R (AKA Percent R or %R) is an indicator that has stood the test of the last 45 years. It is now used by stock, futures, and commodity traders in all markets throughout the world.

This is the story of the indicator… my story.  After all, I created this indicator.  No one knows the indicator, the story behind it or how to use it better than me.

This is the development of what is perhaps the most widely used indicator in the world, (thanks to its publication every day – on every chart – in China’s largest financial newspapers).  Just about every charting software system, free or paid, has Williams %R (Percent R or %R) as an indicator you can add to your charts.

More importantly though, I’m about to show you new ways of using the indicator for today’s electronic markets; Forex or Globex, Stocks or Futures or Commodities. Something you have never seen before. You are about to learn – from the creator, from me, Larry Williams – how to use it for day trading, swing trading, even long term trading and investing.

Williams Percent R

by Larry Williams…

I was young and foolish, in the battle of my life for investment survival.  I was losing money then making it back, greatly frustrated with the trading and investing tools of the 1966 time period; primarily moving averages. I needed more, desperately needed it.

There was no Amazon or Internet to browse through for trading tools. My trading education as a speculator began when I was living in Portland, Oregon.  J.K. Gill (Portland, Oregon’s largest book store) was the best trading education source there was… and they carried every book published on the stock or commodity markets; all 5 of them.

Barron’s was available at the local library along with a collection of old market books, and there were sellers of market books and courses of work others had done, largely in the 1930-1950 time period.

It seems like very little technical analysis was done in the 1955-1965 time. Sure there was Art Merrill’s work on filtered waves, the Granville Letter with Joe’s “Climax Indicator” and a book by Harry Schultz that was filled with wandering generalities; none of them were usable tools.

Stochastics, now a very popular tool but unknown to the public back then, was developed by Ralph Dysant at Market Educators. Later it was claimed as the work of George Lane, an office boy for Ralph.

Allan C. Davis developed a slant on Stochastics, %AC. As a purchaser of courses and such Davis sold or leased, I became aware of these tools.  I looked at Stochastics but did not see that the crossovers of they called % K and % D really worked.

While I liked the Over Bought/Over Sold expressed by the tool, I was not keen on the 10 day time period they used, and above all, I saw what I think they missed.

Hence I developed Percent R ( %R ) to see where today’s close was in Relationship to the Range of the last “X” time periods (note the R’s; some say I chose R as my middle name which is Richard!). I was more concerned about trend analysis of Percent R. That view was expressed in my first book, “How to Select Stocks for Immediate & Substantial Gains”, Windsor, 1967.

As an aside to the story of Percent R and as inspiration to you; at the time I ventured forth into the market and developed this index I was living in a one room flat above a garage at 506 Park Street in Pacific Grove, California.  A year later we had moved to California coastal gem, Carmel, nestled up against world famous Pebble Beach.

Trading with Percent R was going well…so well that people began asking for my market advice. I began a newsletter thus combining my love for the markets with my degree in Journalism from the University of Oregon.  The success of the letter and additional income from trading led to the purchase the original Carmel Valley Country Club, turning it into a trading center and home.  The address was Star Rout Box 30, a mile from where Joan Baez had her Peace Center (2 miles past Carmel Valley Village). Our property was eventually sold to the music team of “Earth, Wind and Fire”. That was a memorable real estate transaction; I paid $25,000 down and had $5,000 a month on the balance of $125,000!

That’s not much these days, to pay for a house, but back then it was a small fortune and the bet was I would not pay it off.  If I did not the house went back to the owner. To put this into perspective the median income then was $9,400.

Here’s some more perspective; it would have cost 4,285 ounces of gold to buy the joint. Today (4/2011) that much gold is worth $6,427,500. I see on Zillow the house is now appraised at about $3,000,000.

My neighbor, Lin Eldridge, was also a trader.  We went through thick and thin in our personal lives and trading, and remain buddies. Those were great years… the exuberance of youth… trading with no fear… and not much sense either!  Michelle Noseworthy was my secretary, the best employee I ever had. She helped prepare our “How Seasonal Factors Influence Commodity Prices” book. Her husband Fred was a stock broker, so she understood the madness to it all.

Not all this success was due to Percent R ( %R ).  I did use other tools including the Commitment of Trader Reports that Bill Meehan tutored me in so well. But, certainly much of my trading profits came from using the Percent R index. Over the years I have received hundreds of letters from traders who have turned their trading around using this tool.

I made my first $1,000,000 trading by the time I was 30 and, as Lin still reminds, we celebrated with a “retirement” dinner. What a joke that was; to think that at 30 I could retire… I did not know then just how much the markets had captured my heart and soul.

Lin and I once talked about, back then, that if we had $250,000 socked away and earned 10% a year trading we would be set for life. $25,000 a year was a King’s Ransom; I bought a brand new four-door Mercedes in 1970 for $5,600, and I think that included the California 3% or 4% sales tax. Today it would be 8.5%… the tax on a new Mercedes is now more than what I paid for my first one!

That’s a long term view of investing and the life of a trader, from that let’s turn to a shorter term view…read more…