Steemit Crypto Academy – Season 4 - Week 4 - Post for @kouba01

Question 1 - Explain the Williams %R indicator by introducing how it is calculated, how it works? And what is the best setting?

The Williams %R which is the short for the Williams Percentage Range Indicator is basically a momentum technical indicator that indicates where the last closing price of a particular cryptocurrency asset is relative to the highest price and lowest price of a particular period of time. The indicator was created by Larry Williams to measure the price momentum in relation to the high price and low price of a given period of time. It is an indicator that is very similar to the stochastic oscillator but operates differently. The Williams %R indicator measures the overbought or oversold price levels in a market.

The Williams %R indicator has proven to be a very powerful and beneficial indicator when it comes to indicating price action momentum. Investors and traders can make use of the Williams %R indicator for reversal signal as well as enty and exit signals, as the different values of the indicator can show if the market is in overbought or oversold and ready for a potential price reversal. Unlike the RSI indicator which shows overbought and oversold and has values moving between 0 and 100, the Williams %R indicator has values that moves between 0 and -100. When the oscillator on the Williams %R indicator has a value above -20 it can indicate that the market is in overbought. When the oscillator on the Williams %R indicator has a value below -80 it can indicate that the market is in oversold. In other words, as the oscillator value moves closer to 0, it is an indication of a strong uptrend movement. In contrast, when the oscillator value moves closer to -100, it is an indication of a strong downtrend movement

Williams %R Calculation

The Williams %R makes use of the highest price, the recent close price and the lowest price in the last “N” period based on the selected timeframe, (the “N” period by default is 14). The formula for calculating the Williams %R is as follows;

Williams %R = (HP – RC) / (HP – LP) x -100

Where;

Highest price = HP
Recent close = RC
Lowest price = LP
(In the last “N” period)
Number of periods = N

Let’s take for instance, using the formula to calculate the Williams %R on the MATIC/USDT chart,
Highest price (HP) = 1.60
Recent close (RC) = 1.35
Lowest price (LP) = 1.07
(In the last 14 periods)

Using the formula (HP – RC) / (HP – LP) x -100
(1.60 – 1.35) / (1.60 – 1.07) x -100
(0.25) / (0.53) x -100
0.4717 x -100 = -47.17
Therefore the Williams %R = -47.17%

From the interpretation of the Williams %R oscillator values which is when the oscillator has a value above -20 it can indicate that the market is in overbought. When the oscillator has a value below -80 it can indicate that the market is in oversold – We can say that the market is neither in the overbought zone or oversold zone.

Best settings on the Williams %R

The Williams %R indicator has a default settings of 14 periods which is considered the best settings for the Williams %R. The number of periods is based on the selected timeframe on the chart. However, it is important to know that when it comes to technical analysis of any cryptocurrency asset, there is no best or perfect settings. The periods can be changed depending on the situation and needs.

Williams %R Indicator on the MATIC/USDT Chart

Question 2 - How do you interpret overbought and oversold signals with The Williams %R when trading cryptocurrencies?

From my earlier explanation of the Williams %R, the oscillator on the Williams %R moves between 0 and -100 with upper threshold of -20 and lower threshold of -80.

Overbought signals

On the Williams %R indicator, the overbought signal is indicated when the oscillator value moves between 0 and -20. This means there are more buyers in the market who are increasing the buying pressure and suppressing the selling pressure. This can be a great signal that there is a possible reversal coming when the price is in the overbought zone. However, the overbought indication on the Williams %R does not necessarily mean that price will reverse, sometimes price continues to make higher highs and higher lows even when the oscillator on the Williams %R is in the overbought zone.

On the AAVE/USDT chart below, we can see that region where the Williams %R oscillator value was moving between 0 and -20 which indicated overbought in the uptrend price movement and after that, there was a reversal in the trend and the price began to fall and entered into a downtrend.

AAVE/USDT Chart

Oversold signals

On the Williams %R indicator, the oversold signal is indicated when the oscillator value moves between -80 and -100. This means there are more sellers in the market who are increasing the selling pressure and suppressing the buying pressure. As always, this can be a great signal that there is a possible reversal coming when the price is in the oversold zone. However, like I mentioned earlier, the oversold indication on the Williams %R does not necessarily mean that price will reverse, sometimes price continues to make lower highs and lower lows even when the oscillator on the Williams %R is in the oversold zone.

On the AAVE/USDT chart below, we can see that the region where the Williams %R oscillator value was moving between -80 and -100 which indicated oversold in the downtrend price movement was followed by a trend reversal which saw the price reverse to the upside and entered into an uptrend.

AAVE/USDT Chart

Question 3 - What are "failure swings" and how do you define it using The Williams %R?

Failure swings is a term that is common when it comes to technical analysis on a price chart and is considered as a very strong indications of a potential price reversal. When it comes to the Williams %R, failure swings is basically what occurs when the oscillator on the Williams %R indicator is in the overbought or oversold zone and also signaling that the momentum is weakening and that there is a potential reversal of the trend coming.

When the market is in an uptrend, the Williams %R oscillator enters the overbought zone and upper limit value between 0 and -20 and retraces downwards before bouncing back upwards but didn’t reach the same previous high point and retraces downwards again. This becomes a failure swing because the oscillator failed to reach the previous high point and create a high-high, indicating that the uptrend momentum is weakening and there is a potential reversal in the market coming.

On the BNB/USDT chart, the Williams %R showed the bullish failure swing. The oscillator reached an upper limit value of -5 and retraced downwards before bouncing upwards but failed to reach the previous high point. This means that the uptrend is weakening and sellers are about to take control of the market for a possible trend reversal. Price reversal followed next as the market entered a downtrend. The bullish failure swing can be a good signal for traders to sell.

When the market is in a downtrend, the Williams %R oscillator enters the oversold zone and lower limit between -80 and -100 and bounces upwards before retracing back downwards but didn’t reach the same previous low point and bounces upwards again. This becomes a failure swing because the oscillator failed to reach the previous low point and create a lower-low, indicating that the downtrend momentum is weakening and there is a potential reversal in the market coming.

On the BNB/USDT chart, the Williams %R showed the bearish failure swing. The oscillator reached a lower limit value of -97 and bounced upwards before retracing downwards but failed to reach the previous low point. This means that the downtrend is weakening and buyers are about to take control of the market for a possible trend reversal. Price reversal followed next as the market entered an uptrend. The bearish failure swing can be a good entry signal for traders to buy.

Question 4 - How to use bearish and bullish divergence with the Williams %R indicator? What are its main conclusions?

When using the Williams %R, the bearish divergence and bullish divergence can provide a very valuable signal in the market. Divergences is basically what happens when the price on the chart is moving in one direction and the oscillator on the Williams %R is moving in another direction. This can be an early signal that there is a potential trend reversal in the market coming.

Bullish Divergence on Williams %R

A bullish divergence on the Williams %R occurs when there is a decrease in price and the price is moving in a downward direction, but the Williams %R oscillator is moving in an upward slope direction. This shows the bullish divergence and is an early signal that there is a weak downward price movement and the market lacks conviction to the downside. The Williams %R indicates that the momentum of the buyers is still strong. This means that even though the price has decreased, the buying pressure is still high and buyers are still in control. Traders can make use of this signal as an early reversal signal for buy entries. From the AAVE/USDT chart, we can see that the Williams %R showed a bullish divergence as the price decreased and the Williams %R oscillator line increased in an upward slope, signalling a reversal in the market. After that, upward price movement followed next.

AAVE/USDT Chart

Bearish Divergence on Williams %R

A bearish divergence on the Williams %R occurs when there is an increase in price and the price is moving in an upward direction, but the Williams %R oscillator is moving in a downward slope direction. This shows the bearish divergence and is an early signal that there is a weak upward price movement and the market lacks conviction to the upside. The Williams %R indicates that the momentum of the sellers is still strong. This means even though the price has increased, the selling pressure is still high and sellers are still in control. Traders can make use of this signal as an early reversal signal for sell entries. From the AAVE/USDT chart, we can see that the Williams %R showed a bearish divergence as the price increased while the Williams %R oscillator line decreased in a downward slope, signalling a reversal in the market. After that, downward price movement followed next.

AAVE/USDT Chart

The main conclusions on the Williams %R divergences is that is has proven to be very good at spotting reversals in the market. Like we saw in both the bullish divergence and the bearish divergence, the market responded after the divergence by a trend reversal. This divergence signals can be very beneficial to traders to either buy or sell. When the bullish divergence is spotted, it can be a good buy signal and when the bearish signal is spotted, it can be a good sell signal.

Question 5 - How do you spot a trend using Williams %R? How are false signals filtered?

The Williams %R indicator is a very powerful indicator that can be used to spot trends in the market and also trend reversal. When there is a trend in the market, the Williams %R oscillator moves in the same direction as the price to indicate a strong momentum in the direction of the market. When the price is moving in an upward direction and the Williams %R is moving above -50, it can be an uptrend signal. When the price is moving in an downward direction and the Williams %R is moving below -50, it can be a downtrend signal.

When it comes to spotting a trend using the Williams %R, it is important to combine it with another indicator for trend confirmation before making any trading decisions. The 200 EMA is a good indicator to use in combination with the Williams %R for trend confirmation. When the price is above the 200 EMA and the Williams %R is moving above -50 and remains there, it can mean that there is a potential uptrend and buying pressure is strong. When the price is below the 200 EMA and the Williams %R is moving below -50 and remains there, it can mean that there is a potential downtrend and the selling pressure is strong.

Uptrend

On the MATIC/USDT chart, we can see that the Williams %R crossed above -50 and staying above the -50 as it moves towards the upper threshold and also the 200 EMA confirmed the signal by the price crossing above the EMA and staying above the 200 EMA.

Downtrend

On the MATIC/USDT chart, we can see that the Williams %R crossed below -50 and staying below the -50 as it moves towards the lower threshold. Also, the 200 EMA confirmed the signal by the price crossing below the EMA and staying below the 200 EMA.

To filter false signal on the Williams %R, The 200 EMA indicator to use in combination with the Williams %R to confirm the trend direction and filter out false signals. When then Williams %R is moving in an upward slope and above -50 which indicates an uptrend movement, but the price is still below the 200 EMA, then the signal is false as the price is still moving in a downtrend movement.

MATIC/USDT Chart

Question 6 - Use the chart of any pair (eg STEEM/USDT) to present the various signals from the Williams %R indicator

For this demonstration, I will be making use of the AAVE/USDT chart. The Williams %R indicator is a great indicator when used with other indicators like EMA can help provide very good buy and sell signals to make profits.

Buy Signal

For the buy signal using the Williams %R, the Williams %R was moving between -80 and -100 lower limit threshold which is the oversold zone and crossed above the oversold zone. The 50 EMA was used as the confirmation for the buy signal as the price crossed above the 50 EMA line. The buy trade was place on the retracement candle above the EMA. Using the 1:2 risk reward, take profit and stop loss was placed.

AAVE/USDT chart

Sell Signal

For the sell signal using the Williams %R, the Williams %R was moving between 0 and -20 upper limit threshold which is the overbought zone and crossed below the overbought zone. The 50 EMA was used as the confirmation for the sell signal as the price crossed below the 50 EMA line. The sell trade was placed at the second candle close below the EMA. Using the 1:2 risk reward, take profit and stop loss was placed.

AAVE/USDT chart

Conclusion

The Williams %R indicator has proven to be a very good momentum indicator that can help traders and investors get useful signals when it comes to spotting trends or trend reversal opportunities and also for good buy or sell signal in the market. However, it is important to know that the Williams %R indicator is not a perfect indicator and has shown to have false signals. That is why it is good to always make use of the Williams %R in combination with another indicator like the EMA or MA or other indicator for signal confirmation before taking any trading decisions. Above all, the Williams %R indicator is a very powerful indicator that when used right can help traders spot valuable opportunities in the market to make profits.