Crypto Academy Season 4 week 4: Crypto Trading With Williams % R Indicator

4개월 전

Good day steemians, heres my entry to the task assigned by crypto professor @kouba01

Homework task

  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.

  2. How do you interpret overbought and oversold signals with The Williams %R when trading cryptocurrencies? (screenshot required)

  3. What are "failure swings" and how do you define it using The Williams %R? (screenshot required)

  4. How to use bearish and bullish divergence with the Williams %R indicator? What are its main conclusions? (screenshot required)

  5. How do you spot a trend using Williams %R? How are false signals filtered? (screenshot required)

  6. Use the chart of any pair (eg STEEM/USDT) to present the various signals from the Williams %R indicator. (Screen capture required)


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image designed in canva

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 indicator was developed in by Larry Williams. Its an oscillator based indicator because it measures price extremes. Just like the Relative Strength Index, the Williams %R Indicator is used to measure overbought and oversold signals which helps a trader to determine the strength of the trend in a market.

How is it calculated

In calculating the Williams %R Indicator, some metrics are put into consideration and they include

Highest high
Close
Lowest Low
and of course the calculation is made with respect to the length/time period.

Williams % R indicator calculation = (Maximum asset value during n period - Price at close) / (Maximum asset value during n period - Lowest asset value during n period) x -100

I.e Within the past 14 days, it has been observed that the highest high peaked at 93, the lowest low was at 62 and the days close was equal to 70. With the information above its now possible to calculate the Williams % R indicator.

Williams % R indicator calculation = (93 - 70) / (93 - 62) x -100
23/31 x -100 = -74
The Williams %R indicator gives off a reading of -74 which is just near the oversold zone.

what is its best settings
The best settings for the Williams %R indicator will solely depend on the trader and his/her trading style. Long term traders will tend to use more periods/length in order to get a detailed and accurate analysis while short term traders will use less periods as they deal with smaller timeframes.

Personally, i find the default setting of length period 14 to be just fine as I trade using the smaller timeframes for short term.

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2. How do you interpret overbought and oversold signals with The Williams %R when trading cryptocurrencies? (screenshot required)

Identifying overbought and oversold signals with he Williams %R indicator.

Overbought signals


The Williams %R indicator is a brilliant tool for identifying overbought market conditions. An overbought market situation occurs when there has been a persistent and continuous upward movement in the price of an asset over a given time period without much retracement.
An overbought signal is given when the Williams indicator is within the area of 0 to -20. At this point traders will look for selling positions with confirmation from price action or other indicators.


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overbought signal given in steem/usdt pair

Oversold signal


An oversold market situation occurs when there has been a persistent and continuous downward movement in the price of an asset/instrument over a given time period without much retracement.
An oversold signal is given when the Williams %R indicator is below -80 to -100


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oversold signal given in steem/usdt pair

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3. What are "failure swings" and how do you define it using The Williams %R? (screenshot required)


A failure swing is a situation that occurs when an indicator which is currently giving off overbought or oversold readings begins to give off trend reversal signal. In a bullish uptrend or in the event of the indicator being in the overbought territory, failure swings occur when the indicator reaches its highest extreme (overbought) and retraces lower only to rebound towards this level again. However, the previous level isn't breached before turning down again and thus the inability to make a higher high gives off a "M" pattern reading as observed in the SOL/USDT chart pair below.

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This often indicates that the existing trend (uptrend) is weakening and a price reversal might be imminent.

Also, in a bearish situation or in the event of the Williams %R indicator being in the oversold territory, failure swings occur when the indicator reaches the lowest low (oversold) and the bounces only to retrace back towards this level. However, the previous low level is breaches before moving up again. This is the opposite of the scenario above and thus the inability to form a lower low gives off a "W" pattern reading. This again signals that the existing trend (downtrend) is weakening and a price reversal to the upside might be imminent.

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4.How to use bearish and bullish divergence with the Williams %R indicator? What are its main conclusions? (screenshot required)


Using divergences with the Williams %R indicator

Firstly, what are Divergences
A divergence typically occurs when price and indicator show conflicting signals i.e price and Williams %R indicator don't agree with each other or diverge from each other.

Bearish Divergence


Bearish Divergence on the Williams %R indicator occurs when price makes a higher high but the Williams %R Indicator registers a lower low.

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In the chart pair above the indicator gave a lower high pattern while price made a higher high pattern. the result was a bearish price movement.

Bullish Divergence


Bullish Divergence on the Williams %R indicator occurs when price registers a lower low but the Williams %R Indidcator on the other hand displays a higher high. An example is given in the ADA/USDT chart pair below

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Here the indicator gave a higher low pattern and price gave a contrasting lower low pattern which indicates a bullish divergence. The result was a spike in price afterward.

It's important to note that divergences in themselves aren't enough rationale for entering into a trade. This is because a divergence mainly signifies that momentum is decreasing or the existing trend is weakening therefore when trading divergences, its best to seek extra confirmation from candlestick (patterns and formations) or other indicators.

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5. How do you spot a trend using Williams %R? How are false signals filtered? (screenshot required)


In determining the trend of a market using the Williams %R indicator, utmost attention should be paid to the reading the indicator gives.
i.e If the Williams indicator is continuously trading below the -50 zone in an uptrend market then the market would be continuously bullish and conversely, if the market is trading above the -50 zone in a downtrend market then the market would be continuously bearish.

In filtering out false signals, the Williams %R indicator could be coupled with a trend following indicator like the Moving averages (EMA, SMA).
With the use of the Exponential moving average, we can filter out false signals by only taking reversal trades confirmed by both the Williams %R indicator and the EMA indicator.
An example of this is given below in the STEEM/USDT chart pair


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The steem price has been in a continuous downtrend and the William %R indicator gave a bunch of oversold signals however the only valid reversal signal was the one confirmed by the EMA indicator leading to an upward bullish reversal. On closer observation, you'll notice the true oversold signal also happened to be a failure swing signal. Hence we see how Price action and the EMA indicator coupled with the Williams %R indicator can help to give off accurate trade signals.

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6. Use the chart of any pair (eg STEEM/USDT) to present the various signals from the Williams %R indicator. (Screen capture required)


With respect to the task assigned ill be making a detailed analysis of the - chart pair below using the Williams %R indicator.


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I've presented an image of the COTI/USDT pair and marked out the demand and supply zones. This cant be called the resistance and support levels just yet as price hasn't approached this levels in the past. We observe how price reacted at first upon hitting the major demand levels, it was followed by upward bullish pressure which then completely reversed upon hitting the marked supply zone.

  1. Price reversed back to the demand zone and couldn't break below upon numerous tests (checking the smaller timeframe, now a valid support area). In the scenario marked '1' price was at the demand zone (now support area) and at the same time the Williams %R indicator indicated an oversold signal. The best tactic here would have been to wait for close of next reversal (green) confirmation candlestick and enter a buy position.
    An Elliott wave pattern was also formed which confirms the upward movement.

  2. In the second instance, price approached the marked supply zone and the indicator was in the overbought area. After a few candlesticks, candles kept wicking and price couldn't break this zone again. Traders would wait for reversal confirmation in the form of pin bars or dojis and enter a sell trade. I entered this trade at the close of the second candlestick(pin bar), set the take profit and stop loss in a 1:1 ratio, and took profits.

In the current price action, we observe a pennant formation, and price has been ranging in a parallel channel close to the minor demand zone marked. Although the indicator gave an oversold signal at first, it would be risky to enter a buy trade immediately.

The best way to trade pennants is to wait for a break out either to the upside or downside (breakouts could be validated with the use of indicators like the volume indicator), anticipate a retest, and enter on the next confirmation candlestick. We could either see a downward move to the demand zone or see an upward move to the supply zone in anticipation of a possible breakout.

Conclusion


Concerning the questions assigned by professor @kouba01 and in adherence to the respective rules highlighted. I've done my research and tried to tackle the advanced course. I was able to learn new things through the course of this task. I'd leave the assessment to the professors.
Thanks to the steemit team for this wonderful learning opportunity once again. It's been nice so far, I'm forever grateful.
Thanks for reading my write up and thanks for your support
Thanks for curating my content :)

NB - All chart images were taken from trading view interface unless otherwise stated

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Hi @doppley

Thanks for participating in the Steemit Crypto Academy
Feedback

Rating criteriaCalculation out of 2
Quality of presentation1/2
Originality2/2
Compliance with topic2/2
Clarity of language1/2
Quality of analysis1/2
Grand total7

This is good work. Thanks for taking the time in demonstrating such a clear understanding of trading with the William %R indicator.

Total| 7/10