Supertrend Indicator: Everything You Need to Know

Super Trend is an indicator similar to moving averages that follow trends. With its help, only two parameters is needed to construct the indicator- period and multiplier.

Different technical indicators help intraday traders enter and exit trades to make money. Some of the calculations they use are moving averages, Fibonacci retracement, stochastic oscillators, Bollinger bands, Relative Strength Index, and Super-Trends. According to its name, a super-trend indicator indicates how the market is trending or following any particular path. Trading signals based on the overall trend identified using the Super trend indicator. Indicators that rely on trends are super trend indicators. A trend occurs when an asset's price moves upwards or downwards for a certain time. Most traders make money when an asset's price moves upward or downward. They buy stocks when prices are rising and sell them when prices are falling. They also profit when the cost of an asset falls by shorting it. Moving averages and Bollinger bands are valuable tools for identifying these trends.

The majority of traders follow trends. The Supertrend indicator is still underutilized among the various market movement indices available. This article will examine what a Super trend is and how to utilize it effectively in the financial markets.

What Is The Supertrend Indicator?

The super trend shows you where the current trend is heading as a moving average. The indicator delivers excellent results. In a trending market, the indicator works well. However, it can produce false signals if the market trades in a range.

The super trend indicator well covers all timelines. You can use it in a short time frame, such as a 5-minute chart, or a long time frame, such as a daily or weekly chart. The indicator has just two parameters - period and multiplier - and is very simple to construct. We include 10 for the Average True Range (ATR) and 3 for its multiplier in the Super trend indicator strategy. In the 'Supertrend' indicator, the true average range (ATR) plays a key role since it uses ATR to calculate its value and signals price volatility.

Super trend indicator helps investors gauge market movements similarly to other trend-following technical analysis overlays, such as simple and exponential moving averages. It can serve as a confirmation tool in a trending market based on price movement. 

How Does a super trend Indicator Work?

Generally, charting is mapping the market movement of assets onto a graph. The direction of the market trend can see as assets rise and fall. Market trends can determine an asset's general direction. A trend indicator alerts the trader of developing trends before they occur and warns of reversals coming soon.

Additionally, you get an indication of the short- and long-term price direction, as well as patterns in other technical indicators and cryptocurrency asset values.

In addition to the period, the super-trend indicator also uses a multiplier value. Firstly, it is necessary to comprehend the concept of ATR, or Average True Range. The ATR indicator provides market volatility value by decompressing the range of security prices for a given timeframe.

An Indicator of the true range is the highest value of these three parameters: current high minus the current low, current high (intrinsic value) minus previous close, and current low (intrinsic value) minus the last close.

For the ATR to calculate, we need first to find a series of TR values and then divide the series by the number of periods. Hence, a moving average calculates.

Formula 

Inputting the above information into the formula for ATR, here's what it looks such as-

TR=Max [(current high –current low), Abs(current high – previous close), Abs(current low – previous close)]

ATR=(1/n)

TRi is the true range

N is the number of trading days or periods

We need to understand this formula to understand the indicator. You pick Periods' values and the multiplier from the super-trend indicator on most trading platforms. Multipliers are values that multiply ATR. For example, most traders use three multipliers for ten periods. The shorter the value of n, the more signals and the more responsive the model is. Increasing n's value can reduce the noise of daily price movements, allowing fewer signals to act upon.

Super trend Indicator Formulas and Calculation

It is a relatively complex process to calculate the super trend indicator. It is not necessary to know the formula of this indicator if you do not have a solid mathematical background. Instead of applying it to the chart, you must apply it.

Let's proceed to the calculation process.

Step 1

Firstly, calculate the basic upper band. It is necessary to add the asset's high and low prices. After that, divide the result by two and add the true average range (ATR) and multiple multipliers. In this context, the true average range indicates market volatility.

 Step 2

To calculate a basic lower band, you must proceed to the second step. Divide the total high by the total low. SUBTRACT is the multiplier from the ATR.

In most cases, the Supertrend indicator configures an ATR of 10 and a multiplier of 3. Each asset has its own best parameters, however. Intraday trading will result in a different ATR depending on the cryptocurrency used and observed period. 

The number of sell and buy signals increases when the parameters of the Super trend indicator are lower. To get faster signals, most traders lower the parameters. However, lowering the parameters can also lead to whipsaws, making it essential to confirm trends by comparing MACD or RSI indicators.

How to Use the Super trend Indicator?

It would be best to open this indicator on the stock chart you wish to monitor and set it to a 10 minute time interval when doing intraday trading. You can use any charting software of your choice. To use the super trend, open the chart.

You can also customize the settings. While using this indicator, you mustn't forget to set a stop loss. Putting a stop loss right on top of the green indicator line for a long position is a good idea. If you want to take a short position, you should place the red indicator line. For traders to become wealthy, they should combine a super trend with a stop-loss pattern.

Supertrend Indicator: When to Use It

During periods of high market volatility or downtrend, the Supertrend indicator is most beneficial. It uses to find entry points and exit points for intraday trading. Utilize trading setups containing the Supertrend indicator if you're day trading and watching short periods like 5, 10, or 15 minutes. 

Supertrend can be used across various time frames, even though it is popular with day traders. The Supertrend indicator provides a higher level of accuracy when used in conjunction with other technical indicators. Supetrend indicator used relatively quickly. Indicators of this type are usually used to determine whether to buy or sell an asset. Please ensure the chart does not range before you use it. This indicator will produce a false signal when the market is ranging, so it shouldn't be used when the market is ranging. The trend should be upwards or downwards instead.

Once the indicator is applied, examine the color and recommendation. You should buy if you've been directed to buy in both cases. You should, however, always check what other indicators it is showing. Verify whether the signal is valid by performing a multi-time analysis.

For example, the EUR/USD chart shows that it is bearish on the four-hour chart.

Parameters of the Supertrend Indicator

Every technical analysis tool is adjusted to fit your trading style. These values are changed to make the indicator more or less sensitive to price movements. If you modify any settings and implement them into your trading strategy, make sure you test the changes beforehand. We suggest 10 minutes and 3 seconds by default.

Changes to any of these numbers may prevent the Super trend indicator from working correctly. There is no optimal setting for trading indicators. Furthermore, changing too many settings could result in an over-optimized trading system.

Super trend settings are adjusted based on period and factor:

• For the ATR calculation, the period setting is the lookback period

• By multiplying the ATR by the aspect, the bands can offset from price

• Smaller settings can generate more signals since the indicator is more responsive to the price

• If the settings are higher, less trading signals will generate as a result of the noise removal

Best Settings of the Supertrend Indicator

Default settings are ten days and three factors. Changing these numbers may result in a different Super trend indicator. A trend-following indicator does not have the best setting.

In addition, if you change too many settings, you may end up with a trading system that is over-optimized at a given point in time. Before using real money, any changes to the Super trend indicator should backtest.

• An indicator with smaller settings will be more reactive to the price of a stock, which will result in more signals

• A higher setting will remove more noise from the market, but at the expense of fewer trades

When you are using a daily chart, for example, you should make sure that the timeframes of your indicator are similar.

ATR calculation method, highlighter, and buy/sell signals are other necessary settings you can modify. The colors of the indicator are also customizable.

Following is a chart illustrating the daily Supertrend in the EUR/USD pair. The default settings are applied.

Supertrend Trading Strategy for Buy and Sell

Identifying buying and selling signals in super trends is the main challenge for intraday traders. Super trends represent uptrends and downtrends. The indicator is flipped over the closing price when there is a signal.

As long as the indicator crosses over the closing price, you can buy and sell signals using a Supertrend indicator. Supertrend indicators buy and sell signals. Buy and sell signals can be determined using super trend indicators. The Supertrend line turns red when it closes above the price, showing a sell signal. 

Combining Supertrends and Other Indices

Supertrend indicators identify buy and sell signals by plotting them on charts and placing entry and exit indicators on their color switch. Traders need to combine indicators to weed out false signals. Listed below are reliable strategies for identifying buy and sell signals and overlays such as Supertrend indicators. 

Relative Strength Index (RSI) Indicator and Super trend

Combine the RSI indicator with a Super Trend indicator to determine entry and exit points for your trades. Using the RSI with its default period of 14 lets you observe whether a potential trade is overbought or oversold. 

Most traders consider a price crossing above 30 to be a buy signal when the RSI is below 30, with a value below 30 typically indicating oversold conditions. If the RSI value is above 70, the cryptocurrency is considered overbought, and when the price crosses under 70 from here, a sell signal is sent. Check your Supertrend indicator by using the RSI. You can assume that your signals are reliable if both show a market trend.

Supertrend and MACD

A technique for analyzing trends is to use a Supertrend indicator in combination with a MACD indicator. This indicator performs best in trending markets, such as those in which the Supertrend indicator is active. MACD crosses above the zero line to indicate an uptrend, which traders recognize as a buy signal. MACD crosses below the signal line during a downtrend, indicating a sell signal. 

In general, a 10-minute chart with 26-13-9 MACD parameters would be recommended for day trading, varying according to the period observed. As the MACD line, the first value, 26, represents the faster-moving average of the 26 candles since the beginning of the period. Depending on the duration and number of candles used to describe it, the trader can choose any period. In addition to the first value, the second value is the slower moving average (in addition to the first value, it is half of the first value) of the last 13 candles. As a final parameter, the number of candles to calculate the difference in the moving averages between faster and slower is also essential. 

In a situation where the moving averages are approaching each other's value, traders will notice the histogram shrinking. The histogram gets larger as divergence occurs, indicating that the moving averages are further apart. Each MACD line reacts differently. 

Crossing over indicates a new trend. The histogram temporarily disappears as soon as the faster-moving average crosses below the slower moving average, signifying a recent downtrend. The slower moving average can also indicate a new trend when it crosses above the faster-moving average. Compare the color of your Supertrend line with the MACD trend to confirm your entry and exit points.

Supertrend and Parabolic SAR

The Parabolic SAR is a stop and reverse trading system and is another popular combination of indicators for traders. Similar to the Supertrend indicator, it measures the strength of a trend in trending markets. You will see dots appear on your chart when plotting the Parabolic SAR. A move above the current price is interpreted as a bearish signal, while one below is viewed as bullish.

Supertrend is less sensitive than Parabolic SAR. These two systems process different data, making their combination highly effective for short-term investors. You can gauge the accuracy of your buy and sell positions by comparing the Supertrend line to the dotted Parabolic SAR line.

Pros and Cons of Supertrend Indicator

Signals from Super trend are accurate and timely. You can download the indicator for free on various platforms. There are numerous ways to download the indicator. Using it is straightforward. The indicator does not work well for all market phases; it works best when trending. The indicator does not work well for all stages of the market. It is most effective for trending markets.

Additionally, Supertrend is used as a trailing stop-loss for existing trades and a strong support or resistance level. 

Pros

• Super trend gives accurate signals, which makes it the best.

• Signals are sent on a precise time basis by this indicator.

• You can download it free of charge on a variety of platforms.

• For intraday traders, the indicator provides the fastest technical analysis.

• Traders can make faster decisions with intraday trading

• You can use it and understand it easily.

Cons

• Not all situations are appropriate for the Super Trend.

• Marketing works best when it is trending.

• ATR and multiplier are the only two parameters used by Supertrend. Occasionally, they fail to predict the accurate direction of the market under certain conditions.

Final Thoughts

One of the fastest technical analysis tools, the Supertrend indicator, requires little technical expertise to use. To reduce the chance of false signals, combine multiple indicators and Supertrend with other overlays. Traders should experiment with various parameters and indicator combinations to identify profitable entry and exit points.

• Super Trends are trend-following indicators similar to moving averages.

• In addition to using this indicator on multiple timeframes, you can use it on a larger timeframe and then go down to a smaller timeframe to use it for entry and exit signals.

• These signals are accurate and given at precisely the right time. In addition, the indicator is free for use on many trading platforms.