Crypto Trading With Williams % R Indicator - Crypto Academy / S4W4 - Homework Post for @kouba01.

Hello Professor @kouba01. Every time I learn a new indicator in this class it is something special, as we continue to enrich our arsenal of tools. I think the more we can learn the better.

Let's get start it!.

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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 WPR is an oscillator type indicator of very easy operation and fast reaction that basically measures the speed or momentum of the price so it allows to detection trends and changes in it.

For the calculation of this indicator actually, very simple values are taken into consideration which is the maximum and minimum of a selected period and the current closing price.

The chart consists of a line located below the price, which oscillates between the values 0 and -100, having two risk zones called overbought and oversold.

How it is calculated

I will perform the explanation of the calculation by taking the data directly from a chart. To begin with, we will start from the formula of the indicator which is:

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A: Highest price of the period.

B: Current price.

C: Lower quotation of the period.

I will choose a period of 14 (completely inside the blue box) in the DOT/USDT pair to perform the example.

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Starting from the data taken from the graph, I proceed to verify them mathematically with the formula.

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As you can see the result of the formula is the same as the one seen in the graph. This shows that this indicator is very easy to design and understand.

What is the best setting?

As we have seen with many other indicators, this answer really depends on the type of trading being done. Originally the indicator is programmed by default for 14 periods which is a standard length that allows it to be used for different uses in general.

On the other hand, if you are looking for a more specialized use for example for a scalping or intraday operation I think it would be convenient to use a length of 21 periods with which the graph is smoothed and you are not at risk of receiving many false signals due to the sensitivity of the indicator.

Look at what the WPR looks like with a very low set of 9 and a very high set of 50.

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As can be seen, the more periods the indicator becomes more stable and less sensitive to signals.

On the other hand, if you plan to perform long-term operations, it may be advisable to use low periods. However, this should be discovered with practice, since if you do not have enough experience with the indicator it is advisable to use 14 periods.

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

Very simple. Normally the WPR indicator will move between the ranges of -20 and -80. When the indicator line goes above the -20 level the cryptocurrency is said to be overbought and if the price is in an uptrend a trend change to bearish is expected, therefore this signal can be used to anticipate the trend change and place a sell order.

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On the contrary, if the indicator line falls below the -80 level it is said that the asset is oversold and if the price is in a downtrend a change of trend to bullish is expected, therefore this signal can be used to place a buy order.

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

This is a special type of signal where the WPR indicator is trending but is unable to break the -20 or -80 level, and instead pulls back leaving in its wake a peak near the overbought and oversold levels.

When a failure swing occurs, it signifies a loss of strength in the current price trend, personally, I take it as a more defining sign of a trend change, as in some cases failure swings come after a break of the overbought and oversold levels.

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In this case, the WPR fails to reach the -20 level, which is interpreted as a weakening of the uptrend of the price and an imminent change of trend.

Being a defining signal of trend change they are splendid and most reliable signals to place buy or sell orders.

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

Like failure swings, bearish and bullish divergences are another (less common) type of signal offered by this indicator.

The fact that these signals are less common makes them even more defining when predicting a trend change and being able to place a buy or sell order. Let's look at both cases.

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Conclusion:

In this case, we can see that although the price is in a marked uptrend, the WPR makes a divergence producing lower and lower overbuying peaks. This indicates buyer fatigue, therefore it is imminent that the price will start to fall.

It is therefore recommended to place a sell entry just at the moment where the price action indicates that the downtrend begins.

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Conclusion:

In this second case we can see that although the price is in a marked downtrend, the WPR makes a divergence producing higher and higher oversold peaks. This indicates a sellers' fatigue, therefore it is imminent that the price will start to rise.

Therefore it is recommended to place a buy entry just at the moment where the price action indicates that the uptrend begins.

Note that in both cases we must wait for the price action to indicate a change in trend before placing the entry order. For both cases, I am using a stop loss below or above the low risk/reward trend. For the take profit, I follow a 1:1 or 1:2 risk/reward ratio.

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

Although the WPR indicator is simple, fast, and easy to understand it is usually susceptible to multiple signals, including several false signals which can confuse the trader and cause him to make bad decisions.

So an effective method of confirming trends and filtering signals is through the use of a 14 period EMA Indicator.

So every time the price breaks the EMA line it will be a confirmation of trend change. This will also help us to filter out wrong signals from the WPR.

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As you can see in this example, during the uptrend of the price the WPR shows many overbought signals, which can be taken as trend reversals. However, as we can see, a real trend change does not occur until two days later. In fact, during that bullish period, we can see a divergence signal which could not have led to place a sell very early.

However thanks to the 14 EMA, we can clearly see that the uptrend was strong even with the WPR signals, as at no time did the price break the EMA line but rather it remained a fairly strong dynamic support. I think in total the 14 EMA helped me to filter out as many as 14 false signals.

Finally, on the 24th we see a new oversold signal from the WPR which is confirmed this time as a legitimate trend reversal by the EMA.

I believe that ultimately the WPR serves to tell us that the current trend is losing momentum, but the EMA serves to determine and confirm whether or not there is a change in the trend.

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

Through the AXS/USDT pair with temporality at 1D I was able to find all these signals which I list and explain below.

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1- We start with an oversold signal which syndicates a change in trend and the beginning of a bullish phase in the price.

2- During the beginning of the bullish phase the WPR generates several overbought signals, however, the trend is far from changing.

3-The overbought signals predict a small pullback in price. But after the pullback reaches the end a failure swing is generated indicating that the price resumes the main uptrend.

4 & 5-During the continuation of the uptrend two divergences are seen in the WPR which shows lower and lower overbought peaks. This indicates a loss in the momentum of the trend. A trend reversal is imminent.

6- A new failure swing confirms the definitive trend change. The downtrend begins.

7- When the new downtrend begins, several failure swings occur in the WPR. These failure swings predict the momentary trend change due to price retracement.

8-Finally the failure swings are confirmed by a copper sell signal that confirms the price retracement.

CONCLUSION

We have just seen an Indicator that although it is very simple gives us a variety of signals. On the one hand, we have that it is a very simple to understand tool that basically indicates the strength of a trend.

Through the measurement of the strength of the trend, we can predict a change of trend by detecting the loss of momentum of sellers or buyers.

On the other hand, we have observed that this indicator is a bit erratic since it shows too many signals and not all of them are reliable.

For this reason, it is advisable to use this indicator in conjunction with other indicators that can serve as confirmation. These other indicators will serve as a tool to filter out false signals.

Finally, it is important to note as always that we must accompany our trading operations with responsible risk management, and not download all the responsibility on an indicator.