The SuperTrend is a trend-following technical indicator which assists traders to understand the direction of the current trend. The indicator provides us with fast signals for both of the directions, buying signals and selling signals. SuperTrend should be deployed on intraday charts with timeframes of 5 minutes or 10 minutes or 15 minutes, any smaller timeframe causes generation of high number of signals. The indicator interchanges amongst two colours which green or red same as the traditional green and red candlesticks, which indicates if the trend is inclined to the upside or downside respectively. A buy / long signal is triggered when the SuperTrend is moves below the closing price of the previous candle and the colour of the SuperTrend changes from red to green. Similarly, a sell / short signal is created when the SuperTrend is moves above the closing price of the previous candle and the colour of the SuperTrend changes from green to red.
SuperTrend is easy and simple tool to use that provides traders with a precise evaluation of the current trend. The components of a SuperTrend indicator are a period and a multiplier which are used for its construction. By default, a SuperTrend’s Average True Range (ATR) or trading period (named as ATR period in Sharekhan’s TradeTiger) is set to 10, and its multiplier is set to 3. Traders can adjust these parameters for efficiency of the signals.
Notable points for SuperTrend
- SuperTrend is a very efficient method for intraday and swing trading
- SuperTrend is a trend-following indicator which is highly efficient as compared to the performance of moving averages and MACD, which are lagging indicators.
- SuperTrend identifies the correct trend of the market. It will give the best trading results in a trending market.
- SuperTrend can be used in combination with other tools / indicators such as RSI or MACD, in order to get a confirmation of the signals
Calculation of SuperTrend
How to plot the SuperTrend?
- Open the candlestick chart of a stock which you want to trade
- Set the timeframe to 5 min or 10 min
- Right Click on the chart, go to Study then go to Add Study, then search for SuperTrend
- Use ATR Period as 14 and Multiplier as 3 and press Confirm
- SuperTrend is plotted on the graph which will give you buy and sell signals
How to use the SuperTrend?
BUY / LONG TRADES ↓
SELL / SHORT TRADES ↓
Advantages of SuperTrend
- SuperTrend provides accurate signals in a trending market
- It is a leading indicator which gives correct timing of the signal
- It provides the trader with a quick technical analysis of the trend
- It is very efficient for both intraday and swing trading
- It helps traders to take quick entry and exit decisions
- It is very easy to understand and can be used as a stop loss and a trailing stop loss
Disadvantages of SuperTrend
- SuperTrend can give signals in a sideways market and the trade will not work
- It gives the best results only during a trending market
- It uses the ATR period and Multiplier as the parameters which may be not adequate to determine the direction of the trend especially during a sideways market
Conclusion of Learnings
SuperTrend is an excellent trend following indicator which gives traders precise buy and sell signals only during trending market conditions. The indicator can give deceptive signals during a sideways market. Combination of SuperTrend with additional indicators such as RSI or MACD can improve your trading results as they can give you a strong confirmation of the signal. SuperTrend can also be combined with another SuperTrend having the same ATR period but different Multiplier in the parameters. SuperTrend is an efficient tool to place your Stop Loss and it can also be used to Trail your Stop Loss as the market becomes trending.
Disclaimer: We do not endorse or encourage you to take trades or investment decisions based upon our posts/research, all of your trading and investment activities are your own and should be taken through consultation with reputed financial advisors. The analysis posted on this website has been created by involving multiple mediums which are present over the Internet.