As the name suggests, Larry Williams
indicators are a group of technical tools developed and published by the renowned
commodity and stock trader Larry Williams in a series of books and articles
since the 80s. In this article we'll present a brief overview of the most
popular ones among the tools developed by him. The indicators themselves will
be examined in their own articles at this website.
Born in 1942 in Montana, Larry Williams
is one of the most famous traders of our time. His greatest claim to fame
arises out of his success in the World Cup Championship of Futures Trading in
1987. During this contest, Larry Williams was able to turn $10000 to $1,1
million in about twelve months using techniques that he had developed earlier
in his carrier. Since then, he has been the author of articles and books about
trading, providing the public with interesting insight to his trading skills,
and sharing the technical basis of his success with other traders. In 1997, his
daughter Michelle Williams also gained the first place in the same competition.
Larry Williams created a large number
of indicators the rationale behind which is explained in his various books and
articles. With his celebrity status in the trading community, it was not long
before brokers incorporated his ideas into their own software and trading
packages, and today the Williams Percent Range indicator, for example, is a
part of the standard technical charting toolbox of just about any broker.
Similar to the Stochastics indicator,
Williams Percent Range Indicator is one of the most popular tools created by
the famous trader. It is basically a volatile oscillator the signals of which
are acted upon only if they last for a considerable period of time. Unlike the
RSI, for example, one doesn't buy or sell at overbought/oversold levels, but
awaits the consolidation of the price in these regions before any conclusion is
reached.
The Williams Oscillator is widely
available as part of most forex charting packages.
Larry Williams has developed many ways
of measuring the accumulation/distribution phenomenon in the markets in light
of volatility, open interest, volume, and many other factors. These indicators
are not as common as the percent range indicator, but they are popular and
highly regarded by traders.
Williams Ultimate Oscillator
The Ultimate oscillator was created for
the purpose of reducing the effect of short-term large movements on the signals
generated. The indicator measures accumulation/distribution in the market,
instead of focusing on the price directly, and can also be configured to
fluctuate in accordance with three different time cycles corresponding to 7,
14, and 28-period measurements.
The indicator is used on the basis of
divergence/convergences, and a signal is confirmed with a trend break,
which is a gap in the price indicating that the momentum of the price
action has changed decisively. Positions are opened on the basis of highs or
lows registered on the oscillator.
This is not so much as an indicator as
it is a concept introduced by Larry Williams in one of his books. Used with
simple bar charts, or in more complicated configurations, the Greatest Swing
Value concept is used by swing and range traders for establishing trade
patterns.
Blast Off Indicator
This indicator is not very common,
since it is a proprietary tool, but Larry Williams will not hesitate to talk
about it during his appearances in meetings or seminaries with other traders.
Conclusion
Needless to say, Williams indicators
are very popular in the trading community. The trading record of the creator of
these tools is enough in itself, for many people, to justify their use.
Nonetheless, anyone who regards these tools as charmed items that will protect
their users from error is likely to be disappointed in short order. As with any
indicator, using the Williams indicators requires, above all, a reasonable
degree of skepticism about their effectiveness. No indicator will eliminate the
necessity of a diligent and focused approach to risk management. These tools
are no exception.
In this group, the most popular ones
are the Williams Percent Range indicator and the Ultimate Oscillator. Although
we're going to examine both of them in greater detail in a separate article, we
may note here that as trend indicators that are volatile themselves, and
will generate good results only if the signals emitted by them are used with
great conservatism. In other words, pick the most convincing, and long-lasting
signals, as you'll have plenty of them to act upon in any case. It is possible
to do very well with these great indicators when one treats risk sensibly and
does not get carried away by his successes, or allow his failures to chop off a
large chunk of his account by trading too much.
Moving Averages are technical tools
designed to measure the momentum and direction of a trend. The idea behind
their creation is simple. Price action is thought to fluctuate around the
average value over a period of time, and we can expect to be able to the
represent the market's momentum by calculating if the current prices are above
or below the market's average value. But since the total length of the time
period that must be included in the calculation of the average is too large
(are we going to begin in 1980, or the year 2000 while computing our time
series?), we pick the period arbitrarily, and update the average as time
progresses.
Moving averages are some of the most
useful and effective gauges of market action in a trending market. Crossovers,
divergences, as well as trends of the moving average itself can be used to
analyze and crystallize the signals that can be distilled from the market
action, which can then be used to help us make future decisions about our
trades.
Types of Moving Averages
There are a large number of moving
averages available for traders. Some of them are:
Simple Moving Average
The simple moving average is the most
basic of these tools. It simply sums up the cloaisng prices over a specified
time, and divides them by the duration of the period, reaching at the value of
the indicator. No weighting is used, and no smoothing factor is applied.
Exponential Moving Average
The exponential moving average is one of
a number of different moving average types that gives greater value to the most
recent prices. As its name implies, the weighting is done exponentially. In
other words, as we move to the left on the chart (towards past values), the
weighting that they receive in the computation of the MA decreases rapidly
(faster than it would be in a linear progression), and the most recent prices
are far more significant, as a result, in determining the value of the
indicator.
Smoothed Moving Averaged
The smoothed moving average is similar
to EMA, except that it takes all available data into account. The earliest
price values are never discarded, but receive a lower weighting, and possess a
smaller role in determining the value of the indicator. As its name hints, the smoothed
moving average is mostly used to smoothen the price action, removing short-term
volatility, allowing us a better understanding of the long term momentum of the
market.
Linear Regressed Moving Average
This moving average is similar to the
MA, except that the weighting factors are linear, not exponential. For example,
the price of the earliest period (n) is multiplied with 1, the following, more
recent period (n-1) is multiplied by a factor of, 2, and the next one is
multiplied by 3, and so on, until we reach the present timeframe. In this
context, the most recent prices receive greater emphasis, and the latest
fluctuations, rises or falls are depicted with greater clarity, aiding trade
decisions.
Using the Moving Averages
Although there are almost countless
improvised, and professionally created strategies based on moving averages,
there are three typical methods that lie at the basis of most of the strategies
and methods.
Crossovers
Crossovers arise when the price rises
or falls below the moving average, signaling the end or the beginning of a new
trend. Crossovers are some of the most common occurrences in technical trading,
and as such, do not grant us a great deal of predictive power in the evaluation
of the market action. They are used best in combination with other tools and
techniques when we seek to evaluate the price action with greater confidence.
Moving Average Trends
Apart from trends in the price action
itself, the moving average can also have its own trend at times. It is possible
to take advantage of these trends for determining entry/exit points. Although
not as reliable as the price trend itself when used alone, it can be an
efficient way to confirm the price action when used in combination with it.
Divergence/Convergence
A divergence occurs when the trend is
in ascendance, but the moving average is descending. A convergence happens when
the market trend is bearish, but the moving average contradicts it by
registering higher highs. These events are thought to signal a future reversal.
When the price action is contradicted by the indicator values, the expectation
is that the market is about to run out of energy, and it may be a good time to
open a counter-trend position. It is important to remember that timing is very
uncertain in all these formations, and that the anticipated reversal may never
occur. Especially in strong trends, it is common to observe
divergence/convergence phenomenon arise regularly without leading to any
significant reversal. Still, it is the rarest, and most popular technical
configuration preferred in the interpretation of a moving average.
MA Hopping
We use this term to define a method of
trading in which MAs of different periods are used as successive resistance
levels for the price action to breach. For example, we expect an ongoing trend
to first breach the 1-hour, then the 3-hour, then the 10, and 40-hour moving
averages in succession, and may choose to open a position at each of these
successive indicators. Since we anticipate continuity between levels indicated
by these MAs, we will maintain our positions as the price hops, so to speak,
between them.
We'll examine each of these methods as
we discuss each moving average type in its own article. To learn more about how
these calculations are performed you are invited to visit the relevant page.
Conclusions
The main weakness of the moving average
is its lagged nature. In many cases, and especially for short term
fluctuations, by the time a moving average captures a market event, it may have
already ended. The moving average will only note a developing market pattern
after it has been set up convincingly, and if the pattern is short-lived, it
will not be possible to trade it, and we may suffer from whipsaws as well.
The strength of this indicator type is
its ease-of-use, clarity, and simplicity. They can be easily incorporated into
any overall strategy, and it is also possible to devise methods exclusively
through the usage of the moving average as well. The great versatility of this
indicator type makes it a valuable addition to any trader's arsenal of
technical tools, regardless of trading style, or the preferred market type.
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