Understanding Williams Percentage Range Indicator - Part 2
Hello everyone, hope you all are doing good? I'm back with the Part 2 and Final Part of this amazing series, Understanding Williams Percentage Range Indicator. If you haven't read the Part 1, I strongly suggest you that by clicking here. In today's article, I will be looking at "failure swings" and how do we can make use of it with The Williams %R?, how we can use bearish and bullish divergence with the Williams %R indicator and lastly, how we can filter false signals when using Williams %R.
Failure swings are situations when the WPR line doesn't reach it's danger values which are either -20% or -80%. So, in other words, Failure swings are conditions when traders are buying(selling) an asset and before the asset is been overbought(oversold), traders start selling(buying) the assets.
Traders can make use of failure swings to their advantage, which are;
Bullish Failure swing signal
Bearish Failure swing signal
Bullish Failure swing signal
This is a situation when the WPR line is heading towards the -80% danger value but reversed. What this means is that, traders were selling the assets and all of a sudden, they started buying the assets. Hence, the price will increase, thus, a bullish trend signal for traders. Look at the image below for more understanding.
Bearish Failure swing signal
This is a situation when the WPR line is heading towards the -20% danger value but reversed. What this means, is that, traders were buying the assets and all of a sudden, they started selling the assets, which will result to the decrease in the price of the assets, hence, a bearish trend signal for traders. Look at the image below for more understanding.
How to use bearish and bullish divergence with the Williams %R indicator?
Divergence is a situation when the price movement of an asset is going in the opposite direction of the indicator used. In other words, divergence occurs when there is a downward price movement of an asset and an upward movement of the WPR line and vice versa. Divergence is mostly used to signal a trend reversal.
Bullish Divergence With WPR Indicator
The bullish divergence with WPR indicator occurs when the price of the asset is moving downwards and the WPR line is moving upwards. A bullish trend reversal in the price of the asset will occur after the divergence. Look at the image below for more understanding.
Bearish Divergence With WPR Indicator
The bearish divergence with WPR indicator occurs when the price of the asset is moving upwards and the WPR line is moving downwards. A bearish trend reversal in the price of the asset will occur after the divergence. Look at the image below for more understanding.
How do you spot a trend using Williams %R? & How are false signals filtered
You can spot a trend using the WPR indicator quite easily. Whenever the MPR line is above -50%, that signals a bullish trend and whenever the MPR line is below -50%, that signals a bearish trend. Take a look at the image below for more understanding.
How are false signals filtered
Sometimes the WPR indicator might provide false signals which may lead to loss of funds by traders. So as a trader using the WPR indicator, you need to know how to filter false signals by using another indicator to confirm the signal.
For me, I make use of the Moving Average(MA) indicator to confirm trends, hereby filtering the false trends of the MPR indicator. Since, we know that whenever the MA line is below price, that's a bullish signals and whenever the MA line is above price, that's a bearish signal.
So, whenever the MPR line is above -50% and the MA line is below price, that's a bullish trend signal. Also, when the MPR line is below -50% and the MA is above price, that's a bearish trend signal. Look at the image below for more understanding.
Conclusion
Williams Percentage Range indicator is truly a very good oscillator-based indicator that helps traders know when to expect a bearish trend, bullish trend and a trend reversal. In all, it is fantastic indicator for traders to use alongside a confirming indicator like the Moving Average(MA) indicator, to predict trends direction more effectively.