Steemit Crypto Academy, Season 4 | Week 4 - Crypto Trading with Williams % R Indicator| Homework Post for @kouba01
INTRODUCTION
In the world of today, traders rely heavily on a variety of indicators that enable them to make informed decisions concerning the various trades they make within a particular period of time. There are numerous indicators which are available but the efficiency differs. Thus, the important thing is to identify a good indicator, familiarize yourself with it and master its usage.
In this article, we will be looking at the williams %R indicator.
1. Explain the Williams %R indicator by introducing how it is calculated, how it works? And what is the best setting? With justification for your choice.
The Williams %R indicator
The %R indicator uses range of values criteria to predict the current market trends. Readings between 0 to -20 signifies an overbought. Likewise a reading between -80 to -100 signifies a oversold. These readings gives vital information on the current trends of the market hence a trader can make entries and exit points in the market.
How the Williams %R indicator is calculated
Larry Williams developed a formula to calculated the value of the indicator using readings of the price behavior of the asset from.
Williams %R = (PMax - PC) / (PMax - PMin) × -100
PMax = highest high within a specific previous period
PC = current close price
PMin = lowest price within a specific previous period
Let's consider this scenario
Let's assume the chart of an asset has the following data with a period of 14.
- highest high price is $45
- current close price is $30
- lowest low price is $20
Williams %R = (45-30)/(45-20)*-100
Williams %R = (15/25)*-100
Williams %R = 0.6*-100
Williams %R = -60
Best Settings of the %R Indicator
The default settings of this indicator is the 14 period. As we are all aware, most people in the crypto ecosystem has accepted the 14 period with numerous indicators since it gives a better results. Larry Williams (the developer of the indicator) suggests the 14 period as the default settings which makes it more reliable to use the 14 period settings.
However, the best settings in my opinion would depend on the trader. A scalping trader and a swing trader requires shorter and longer periods respectively. Scalping trader would require a shorter period since the trades are executed within seconds and minutes.
Other technical indicators can be used alongside the Williams %R for a more reliable results.
2- How do you interpret overbought and oversold signals with The Williams %R when trading cryptocurrencies? (screenshot required)
Overbought Signals
As we said earlier, the Williams %R indicator indicates an overbought signal whenever the range of the reading falls between 0 to -20. This reading signifies that there are more traders buying the asset than the usual. This circumstances usually cause a trend reversal usually to the downtrend.
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From the chart above, the trend was initially moving in bullish trend before it reverses in the opposite direction since the williams %K indicators falls between 0 to -20.
Oversold Signals
Contrary to the overbought, the Williams %R indicator shows an oversold signal when the indicator reads between the range -80 to -100. Oversold signifies that there are more traders selling more of the asset than usual. contrary to the overbought signal, the oversold signal reverses in a bullish trend.
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From the ETHUSDT chart above, we can see clearly that the trend was initially a bearish before it reverses to the bullish trend just before the Williams %K indicator falls between -80 to -100.
3- What are "failure swings" and how do you define it using The Williams %R? (screenshot required)
The Failure Swing
These situations usually occurs when the indicator readings does not fall within neither the overbought range nor the oversold range but the price still reverses. This circumstances usually occurs when the Williams %R indicator is just about hitting the oversold (-80 to -100) or the overbought (0 to -20) range. Although these trends may look convincing for trading, they are rectified by the Williams %R indicator as a weak trends since the readings does not reach the requirements.
When the indicator fails to cross the overbought ( -20) boundary before the price reverses, we call it bullish failure swing. On the other hand, when the price fails to cross the oversold (-80) boundary before the price reverses in the bullish trend, we call it Bearish failure swing.
Bearish Failure swing
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From the chart above, we realized that the indicator did not hit the oversold boundary before the price reversed. most people could decide to trade with these signals but it isn't advisable to trade with such signals since it doesn't meet the requirements.
Bullish Failure Swing
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From the chart above, we can see clearly that the indicator tried to reach the boundary but the price reversed when the indicator was around -30. This show a weak trend since the indicator didn't hit the boundary.
4- How to use bearish and bullish divergence with the Williams %R indicator? What are its main conclusions? (screenshot required)
Usually with momentum based indicators, divergence occurs when the indicator and the price chart of the asset moves in opposite direction to one another simultaneously.
Bullish divergence with Williams %R indicator
These occurs when the price trend of a crypto asset shows a bearish trend while the %R indicator shows a bullish trend (the current high of the indicator is higher than the previous high). When this happens, the price trend quickly reverses in a bullish direction which signifies a bullish divergence.
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Bearish divergence with Williams %R indicator
Contrary to the bullish divergence, the bearish divergence occurs when the price trend of a crypto asset shows an uptrend while the %R indicator show a bearish trend (the previous high is of the indicator is higher than the current high). When these situations occurs, the price trend reverses in a bearish direction causing the bearish divergence.
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5. How do you spot a trend using Williams %R? How are false signals filtered? (screenshot required)
Generally the -50 line is used to determine trend of the asset. when the reading on the indicator cross above the -50 line, it is considered as a strong uptrend. likewise when the indicator line falls below the -50 line, it is considered as a strong bearish trend. With these information only, there would be more false signals showing up since the indicator would be oscillating above and below the the -50 line.
However, the Williams %R indicator could be used alongside other technical indicator to filter out false signals. Indicators like the EMA, RSI, ADX, Vortex etc can be used alongside the Williams indicator to filter out false signals.
Case 1(false signal)
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From the screenshot above, we realize that the Williams %R indicator signaled overbought, as the indicator moves above the boundary -20 which signifies a bearish trend. however, the EMA still falls below the trend which confirms false signal.
Case 2(good signal)
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Comparing both cases, we realized that as the indicator moved above the -20 the price of the asset reverses and the EMA also stayed above the price. This signifies a good bearish trend.
6- Use the chart of any pair (eg STEEM/USDT) to present the various signals from the Williams %R indicator. (Screen capture required)
Buy Signal
A buy signal occurs when the Williams %R indicator line ranges between -80 to -100 which indicates oversold. however, we use the EMA to filter out the false signals to make a clear buy entry.
- We place a buy entry when we see a clear bullish candlestick.
- we place a stop loss at point where the trend reverses.
- we place a corresponding take profit.
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From the chart above, the William %R crosses below the -80 limit which signifies bullish trend reversal. we confirmed the trend with the EMA which proves a strong uptrend. we place a buy entry when we see a clear bullish candlestick.
Sell signal
A sell signal occurs when the Williams %R indicator line ranges between 0 to -20 which indicates overbought. however, we use the EMA to filter out the false signals to make a clear sell entry.
- We place a sell entry when we see a clear bearish candlestick.
- we place a stop loss at point where the trend reverses.
- we place a corresponding take profit.
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From the chart above, the William %R crosses above the -20 limit which signifies bearish trend reversal. we confirmed the trend with the EMA which proves a strong downtrend since it moved above the price. we place a buy entry when we see a clear bullish candlestick.
CONCLUSION
Technical indicators has become a great tool for technical analyst and traders in the stock market. Technical indicators has really improved the win percentage in trading.
The Williams %R indicator is a very good indicator to determine trends of assets to make trade entries. It can be used alongside the EMA to confirm trends to make better trades. I suggest the use of the ADX alongside these two indicators to determine the strength of the trend. This is to adjust the take profit and stop loss. When there's a strong trend, we can confidently inject more volume for a bigger profit.
It would be very advisable not to use the Williams %R indicator alone in trading since no indicator is 100%.
Hello @njaywan,
Thank you for participating in the 4th Week Crypto Course in its 4th season and for your efforts to complete the suggested tasks, you deserve a Total|7.5/10 rating, according to the following scale:
My review :
An article with good content in general, as you managed to clearly answer most of the questions.Your explanation of the indicator was comprehensive and touched on all its characteristics.
Thanks again for your effort, and we look forward to reading your next work.
Sincerely,@kouba01
Thank you