- What is the Supertrend Indicator?
- Buy and Sell Signals from the Supertrend Indicator
- Identifying a Trending Market
- Average True Range Is Part of the Formula
- Combining Supertrend with Other Indicators
- Best Time For Supertrend Indicator
- Pros and Cons
What is the Supertrend Indicator?
Intraday traders rely on technical analyses to get an insight into market trends and make the proper investments that will allow them to make a profit. Accurate signals are found on trading charts if the proper technical analysis is used.
Every trading platform offers tools, but not every broker follows the same trading strategy. An intraday trader can face different challenges than their colleagues, and the first trading indicator they think of to recognize potential trades is the Supertrend indicator.
With an ambitious name like that, no wonder it is the first indicator on every trader’s list. It is a simple tool that provides strong buy or sells signals in a trending market. Supertrend trading strategy comes with default values that monitor daily charts and offer buy signals or sell signals.
It was created by France trader and author Oliver Seban. The biggest advantage of the indicator is that it is applicable at every time frame. As a trend following indicator, it is more precise than moving averages.
The core of the Supertrend indicator is the trend. The term trend is used to signal a price movement in a given direction it can be up or down in a given time frame. It can be used on equities and forex. But also, hourly, daily, and weekly charts but is not very effective in a sideways-moving market.
Any good charting software has the indicator and the default settings. Buying and selling signals on technical charts help predict the accurate direction of the market. Supertrend technical analysis indicator is used in tandem with the ATR calculation on various trading platforms.
Also read: ATR Indicator Ultimate Guide
Buy and Sell Signals from the Supertrend Indicator
When implementing the indicator, traders have to view the chart of a given stock they are interested in, and when performing intraday trading set a time interval of 10 minutes. For these purposes, you can benefit from quality charting software.
The default parameter is a period of 10 and 3. Remember that any changes to these numbers will influence the results of the Supertrend indicator. Using only the two parameters on a trading chart is a safe option.
There is no ideal setting for any indicator. But at the same time, modifying settings creates a trading system that is over-optimized for that point in time.
Smaller settings make the indictor more reactive to the price, and that creates more signals. While higher settings will remove the noise from the market at the risk of fewer trading signals
Open the chart and insert Supertrend and place the settings as 10 and 3. There is the possibility to modify the parameters if you so choose, but its best to guide yourself with the tested practices
When using this indicator, do not forget to place your stop loss. In the case of a long position, traders can put stop loss right at the green indicator line. While for a short position, it can go at the red indicator line.
The stop loss pattern in tandem with the Supertrend indicator is the best option for making a profit.
Identifying a Trending Market
Being a trending indicator, it is very productive in trending markets. When the indicator overturns the closing price it is the buy-sell signal investors are waiting for. The buy signal is emerging when the Supertrend closes under the price.
On the other hand, a sell signal is made when the Superintend closes over the price. No technical indicator is totally precise and this applies to the Supertrend, which tends to display false signals in the sideways market.
But if contrasted with other indicators the propensity for false signals is smaller.
Also read: Day Trading for Beginners
Average True Range Is Part of the Formula
It is a simple indicator to use, but calculating it can be another thing. In most cases, traders just need to click an icon on software to implement the indicator. But calculating it is another matter and a complex method.
The mathematical background is needed to work with the formula, but most traders do not need to bother with the calculation, still, if you want to get a good understanding you should learn the process behind the results the indicator provides.
The formula incorporates the average true range (ATR) because the Supertrend uses atr indicator to calculate its value. Compute the upper band, by appending the stock’s high and low prices.
After that divide the result by 2 and append the multiplier and the average true range (ATR). ATR is an indicator utilized to locate price volatility.
The next step is to compute the fundamental lower band, by attaching the high and low and dividing the outcome by 2. Then deduct the multiplier multiplied by the average true range.
Combining Supertrend with Other Indicators
Plotting the Supertrend indicator on a chart and waiting for a color change that indicates buy and sell signals is one way of using the indicator.
If you want to eliminate false signals it is advisable to use them in combination with other signals. There are few reliable strategies of pairing indicators to identify precise buy and sell signals.
Supertrend and RSI
Determining entry and exit points is achievable by mixing the RSI indicator with a Supertrend indicator. Calculate the momentum of a potential trade by looking for overbought or oversold signals with the RSI and a default period of 14.
Usually, an RSI value under 30 signals an oversold market. Traders accept a price over 30 as a buy signal.
Supertrend And Parabolic SAR
Parabolic SAR is another preferred option for pairing with Supertrend. The Parabolic SAR is referred to as a stop and back-pedal system. Plotting the Parabolic SAR on a chart creates a progression of dots.
If the dots move over the present price, brokers interpret it as a bearish signal, when it goes under the active price it is a bullish signal.
Both indicators analyze different data, which makes the pair useful for short-term investors. When using both indicators to a chart, follow the Supertrend line comparative to Parabolic SAR to measure the precision of buy and sell positions.
Supertrend and MACD
Paring a Supertrend indicator with the MACD capability to estimate power of the trend makes for a practical technical analysis strategy. The MACD is most effective in a trending market. Uptrends are displayed by the MACD going over the zero lines, which traders interpreted as a buy signal.
Downtrends are shown by the MACD line going under the signal, indicating a sell signal. Confirm entry and exit points by comparing the color of your Supertrend line with the trend reflected by the MACD. The two indicators work well together in offering the quickest technical analysis in the daily chart.
Best Time For Supertrend Indicator
The optimal time for the indicator is when the market is in a powerful uptrend or downtrend. It helps in recognizing positions for exit and entry.
Implement trading scams that incorporate the Supertrend indicator when day trading and monitor short time intervals of 5 to 15 minutes.
It is a treasured tool of day traders, the Supertrend indicator is adaptable to be used over many contrasting time frames.
Pros and Cons
- It produces accurate signals.
- You can get it for free on many platforms.
- It delivers signals at a precise time.
- Fast technical analysis for intraday traders.
- It works when the market is trending.
- Uses only two parameters that are not sufficient under every condition to predict market movement.
The Supertrend indicator is a volatility-based indicator that shows the direction of the predominant price action. It is a trend indicator akin to moving averages.
Traders use the indicator for buy and sell signals as always, correct risk management is crucial to protect your trades.
This indicator can be applied on different timeframes to find entry and exit signals. When the indicator flips on a daily chart from red to green is a signal to buy the opposite is an indication to sell.
Supertrend provides precise signals on accurate time. The indicator is part of most trading platforms for free. The is an easy-to-use but a very effective volatility-based trading tool. It follows the trend direction of the price and gives early entry and/or exit signals.
If used adequately, it can become a trader’s useful tool for making decent income off online trading including forex, stocks, indices, and so on. Traders need to practice using the indicator until they find the best setting and timeframe.
Which Supertrend Indicator Is Best?
Most indicators show best results when used in combination, and Supertrend is useful when combine with MACD, Parabolic SAR, RSI.
How Do You Read a Supertrend Indicator?
If the super-trend indicator goes under the closing price, it is a buy signal, and if it moves over that it displays a sell signal.
How Do You Use the Supertrend Indicator?
Check the chart of a particular stock that looks promising, set a time interval of 10 minutes and insert the Supertrend, then follow the signals.
Is Supertrend a lagging indicator?
The Supertrend indicator is lagging because it depends on current price action to produce signals.