If you are investor or trader there are high chances that you are using Technical Analysis for generating buying and selling opportunities. “SuperTrend” is one such amazing tool which gives precise buy and sells signal to enter the stock market.
Supertrend being a very simple indicator. Very few people put this amazing indicator to the right use. Failing to use Supertrend in the wrong way and wrong time can give you wrong results.
Understanding the indicator backtesting and then using is the right way to get the maximum benefit out of the indicator.
Supertrend is a trend is a trend following indicators but because of the different calculation, it works better than the most of the other trend following indicators. The disadvantages of a trend following indicators are eliminated only partially with this indicator.
This indicator was developed by Olivier Seban and works at all the time frames and all markets.
It can be used for Forex, Commodities, Derivatives, Equities and lately even cryptocurrency. Any underlying which plots the price movement on the time series chart can take the advantage of the supertrend indicator. Because of its flexibility and uniqueness, it can be used right from 5min chart to daily chart. It can also be used for intraday scalping.
Let us first understand the formula for SuperTrend Indicator to understand it better.
Formula For SuperTrend Indicator
Super trend uses the value of ATR. Average True Range (ATR) is an indicator that measures volatility.
“The average true range (ATR) plays an important role in ‘Supertrend’ as the indicator uses ATR to calculate its value. The ATR indicator signals the degree of price volatility,” Sameet Chavan, Technical Analyst at Angel Broking, told ETMarkets
Alternatively, the Supertrend can be used be used as support and resistance.
Your requirement of calculating the indicator values manually would be very minimum since most of the current stock market charting software has the supertrend inbuilt in it.
Based on the variations in the ST there are many options available. Kindly find a screenshot below which shows buy and sell based on the supertrend indicator.
Beginning of green line indicates buy signal and bullish trend. Likewise, the beginning of a red line indicates sell signal and bearish trend.
How to Use Indicator
Trading based on Trending Principles applies to supertrend similar to other trending indicators. The very important question here is how are we going to capture a big trend with ST indicator.
Especially for investors catching a big trend is very important for taking the long-term investment decision.
Ideally, one should choose the candlestick time period for a longer duration such as daily or weekly. Some even use multiple supertrend indicators based on their research requirement.
- The SuperTrend Works in Bullish and Bearish Market.
- It’s performance changes in the Non-Trending environment.
- It works very well with all the time period.
- The performance does not change with a change of the underlying.
- The stock studied for ST should have good volumes.
Those who are using Amibroker can get the code from Github
Below is a screenshot from trading view which talks about ST based on all the variations possible submitted by trading view users.
Drawbacks of Supertrend Indicator
ST works wonderfully during upward movement and downward movement in the stock market. It is challenging to use ST during sideways movement in the stock market.
The indicator can be used with multiple other tools and indicator such as candlestick pattern, stock pattern, moving average crossover. Another combination tool for using this indicator is ADX. The indicator which focuses signals if the market is trending or not.
Independently this indicator cannot be used for shorter durations.
Over To You
If you are looking for a very Simple and Convenient Indicator and a tool to generate trading signals this is the right tool for you.
Although an essential charting tool, it is equally important to understanding charting declutter. Find out how we were able to achieve higher profitability with charting declutter.