Percent R ... Just What is it?

A deeper look at Percent R

Have you ever scanned through the list of indicators to see whether there is anything interesting that you think you can use? Did you input Percent R? Maybe you thought it was useful, perhaps not. Did it remind you of anything? It looks similar to Fast Stochastics possibly…

Just for a look I have inserted both Fast Stochastics (above in blue) and Percent R (below in red). They do seem to have similarities and certainly a similar reaction in timing but the scaling for Percent R is negative while that of Fast Stochastics is positive.

Actually they are the same.

Let us just look at the formula for each:

Fast K = 100 * ( Close - Lowest Low ) / ( Highest High - Lowest Low )

% R = -100 * ( Highest High - Close ) / ( Highest High - Lowest Low )

Quite clearly they are measuring the same relationship between the position of the close within the range of the chosen number of recent bars. The difference between the two is that Stochastics measures the position of the close from the highest high in the range while %R measures the close from the lowest low in the range.

You will also see from the formula of %R that the result is multiplied by -100 and this results in a scale of zero to -100 while Stochastics has a scale from zero to +100. Then why is there a difference between the two in Dealbook? That is because the default period used in Stochastics is 8 while %R uses 14.

What I did was change the %R calculation to use +100 as the multiplying factor to arrange the results in a scale from zero to 100. I then used a period of 14 for both indicators and then plotted them in the same chart:

Now you can see that the two are in fact identical. Why does %R provide an alternative method of displaying the same information? To be honest I really don’t know why and since they are exactly the same I personally do not use %R and if I want to use this type of momentum indicator I apply Stochastics.