Crypto Trading With Williams % R Indicator - SteemitCryptoAcademy S4W4- Homework post [kouba01]
This is my submission for the Assignment provided by Professor @kouba01. The session was about a very famous Indicator for online trading named 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.
Williams % R actually stands for Williams Percentage Range this is an Oscillator that helps us in our trading to take better decisions. The William %R shows you where the last closing price is relative to the Highest and Lowest Prices of a given time period.
The value of William %R ranges from 0 to -100. Let me show you how we can calculate the value of William %R.
William %R= {Highest High(14 periods) - Most Recent Close}/{Highest High(14 periods )- Lowest Low (14 periods)
Whatever result we will get we need to simply multiply with -100 to the value and 14 periods denotes that is going to calculate the value based on the last 14 candles that is the by default setting suggested by Mr. William. If the value is more is closed to 0 then it would be called a Strong Bull or Overbought zone and when it is closed to -100 then it would be considered as Strong Bears or Oversold zone.
a) William %R > -80 then Oversold
b) William %R > -20 then Overbought
Let's have a practical example of it-
I will be used by the default setting of the chart which is 14 periods.
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Values for the calculation-
Highest High = 44366
Lowest Low = 43548
Recent Close= 42676
William %R= {Highest High(14 periods) - Most Recent Close}/{Highest High(14 periods )- Lowest Low (14 periods)
William %R= {44366-43548}/{44366-42676}= 818/1690= 0.4840
Now we need to multiply with -100 to get the William %R = 0.4840* -100= 48.40 This is the approx value that we can see on the chart as well.
Let's implement this on the chart -
Step:1- Go to Tradingview.com and Open any chart of an asset.
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Step:2- Click on the Indicator Section and Type "Williams "
Step:3- Select Williams %R to implement the indicator on the chart.
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I believe the by default Setting of this indicator is the best which is suggested by its created after doing a lot of Research and Backtesting. As an individual person I believe applying something and backtesting it manually won't be possible for me so for me the better thing would go with something which is already been tested by the experts. Also, the majority of people use the same default settings along with other indicators. However, if anyone would like to change it as per their preference then it's good to after doing backtesting.
2. How do you interpret overbought and oversold signals with The Williams %R when trading cryptocurrencies?
if you have look at the chart there are two lines one is at -20 and one is at -100 this looks somehow similar to RSI which is a momentum indicator and the great thing is that Williams % R also shows diversions. Whenever the price approaching close to 0 it will be considered as Strong Bull momentum and when it is approaching close to -100 then it will be Strong Bear momentum.
a) William %R > -80 then Oversold
b) William %R > -20 then Overbought
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You can see in the above chart when the William %R reaches -90 then it reversed from there and shows a quick move, again the second time when William %R reaches 0 which is the extreme Overbought zone the price reversed from there. You can see how perfect it is working in other examples too however I would suggest you not use only Wiliam %R we need other confirmation too to jump into the trade.
3. What are "failure swings" and how do you define them using The Williams %R?
Swings failure often happens when the value of William %R failed to reach its convention parameter like more than -20 or -80. This thing can often be seen when the strength of the trend is weak. Till the time the value of William %R is not reaching any certain level (-20 or -80) then we can't predict or take any decision for the trade.
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Interpretation:
Senario:1 & 2- In the scenario 1 and 2 you can see the value of William %R is reaching around -60 which is nether coming under Overbought zone or Oversold so in such situation the trader can't take any action with proper confirmation.
Senario:3& 5- The same situation happen in case 3& 5 where we are not sure who is actually in control and whether it is overbought or oversold.
Senario:4- Her you can clearly see that the value of William %R is in the Oversold zone and after getting confirmation from other tools you can simply go for the Buy signal.
Whenever the William %R indicator failed to reach its decision parameter then it is considered as Swing failure.
4. How to use bearish and bullish divergence with the Williams %R indicator? What are its main conclusions?
Diversion happens when any commanding party like Bulls or Bears loses their strength to take the price in their direction. This can be easily seen on the William %R indicator or RSI as well.
Bullish Diversion:
Here in the chart, you can see the price is making lower lows however William %R is making higher high and as a result, the price reversed in opposite direction and started moving up.
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Bearish Diversion:
Here is the example of Bearish Diversion, you can observe the price is making continuously Higher high however the William %R is making Down Slope or Flat this shows that the buyers are losing the momentum to take the price up to and as a result, the ETH crashed along with BTC. I remember that day I was into trade and thankful Stop-loss helped me to exit at breakeven.
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5. How do you spot a trend using Williams %R? How are false signals filtered?
William %R can be used to spot the small trends either bull side or bear side. When the price is going down and William %R is also going then it can be considered as Downtrend. When the price is going up and William %R value is going up too then it will be considered as Uptrend.
We can spot small trends on the smaller timeframe however this works even better on the bigger timeframe and the accuracy will be good.
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Filter False Signals:
Well, using William Indicator alone is not enough to give a trade with proper confirmation and we need need to use other tools as well so that we can get more confirmation. Being a trader I look for 3 strong reason to take any trade or position Indicator and price actions. We get more confirmation we can moving averages or any other indicator like Super trend. I would like to use Exponential Moving average specially 20 EMA as it moves faster than Moving average because it give priority to the recent price change.
Here is how you can implement on the chart:
Step:1- Go to Tradingview.com and Open any chart of an asset.
Step:2- Click on Indicators and type Exponential
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Step:3- You can simply click on it to implement it on the chart. By default it would 9 period however we will change it to 20 EMA. Click on setting Icon and fill the value 20 period and also you can adjust the color, thickness as per you need.
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Here is how it looks after implementing 20 EMA on the chart. Blue line is 20 EMA and here is how we can interpret it.
Buy Signal: Whenever the value of William %R is increasing from Oversold zone and the candle closes above 20 EMA then it would be a Buy Signal.
Sell Signal Whenever the value of William %R is decreasing from Overbought zone and the candle closes below 20 EMA then it would be a Sell Signal.
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You can see here we taking taking the trend on the basis of two confirmation and most of the trades gives at least 1:1 if it is not extreme sideways momentum. In the sideways trend this difficult for any moving average or indicator to predict the direction as in the given chart you can see many times it is closing above and below 20 EMA which makes things confusing. We can easily avoid such condition by mixing Price action and we can also notice their is Bearish Diversion as well and the price breaks the range and dumped hard.
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6. Use the chart of any pair (eg STEEM/USDT) to present the various signals from the Williams %R indicator.
To answer this question I would like to go with DOT/USDT chart to get Buy/sell Signals based on William %R. I would like to show you some setups.
Setup:1- We can see in the chart the value of William %R is in the Overbought zone. Also the price is moving up however William %R is making Bearish diversion because here the Buyers are losing momentum to take price more up and as a result it dumped. In this case we can enter on the first red candle and can aim for at least 1:1.
Setup:2- This setup is similar to setup 1 where we William %R is in overbought zone and there is Bearish diversion as well. The price is either slightly moving up however in the second attempt to go up you can see the value of William %R is less than previous Swing time as a result it makes a Bearish diversion. We can enter on the first Red candle and aim for 1:1 Risk reward ratio.
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Setup:3- In this setup you can see the price is making lows and it is already in Over sold zone. Also we can small a Bullish diversion as well although it is not perfect however can consider it some how. Even we can find one more pattern here which is Morning Star. We can enter on the second green candle and can easily aim for 1:1.
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Let's try the same concept on the smaller timeframe, this time I would like to use BNB/USDT pair.
Setup:4- This is Bnb/usdt 1 hr chart. You can see in the chart William %R is in Overbought zone and we can take entry when the William started going down and crosses -20 and easily aim for 1:1.
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Setup:5- In this setup you can see the William %R is showing oversold zone and once we William % is going up then we can take entry however this is still not sufficient we should have other confirmations as well. here you can see the candle stick pattern it's not any special candle pattern however you can see the bulls have taken control now and making rounding bottom.
Conclusion
William %R comes under the category of Oscillator and it is very helpful for the traders to spot the strength of the Trend, Reversal Point, Diversions and Over bought/Oversold zone. if we use only Over Bought and Over Sold readings for the William %R for entry signals without any other strong reason/confirmation then we may have to gone through continuous so many losing trade in a row. If we can use this indicator with other tools then it would be very smart decision and help us to get better decision. The session conducted by the professor was really awesome and I enjoyed doing this assignment.