Percent R (PR)
Noted author and commodity trader, Larry Williams, developed a trading formula called the %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 %R always falls between a value of 100 and 0. The trading rules are simple. You sell when %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 RSI as a trading tool. The %R works best in trending markets, either bull or bear trends. Likewise, it is not uncommon for divergence to occur between the %R and the market. It is just another hint of the market's condition.
Futures.Quote 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 %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. Futures.Quote examines the prices for the AST n intervals to find that trading range. Once those values are determined, the general formula for the %R is as follows:
%Rt = ( (Highn - Closet) / (Highn - Lown) ) * 100
- %Rt is the percent of the range for the current period.
- Highn is the highest price during the past n trading periods.
- Closet is the closing price for the current period.
- Lown is the lowest price during the past n trading periods.
- n is the length of the interval.
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:
%R = ( (9275 - 9267) / (9275 - 9125) ) * 100
= (8 / 150) * 100
The computations continue with the software continually checking for a new high or low for the length of the interval specified. The %R can be a volatile indicator. It fluctuates quickly and widely.