A Trend Ahead: – Supertrend

Published by Sharekhan Education | September 21, 2022

 Ankit Saxena | Sharekhan Education

A Trend Ahead – Supertrend

One of the most common problems faced by traders is which indicator works well for intraday trades. Intraday trading is very fast-paced and intricate and therefore requires a certain level of patience and a rule-based approach to deal with the complexities of the trading style. However, when it comes to dealing with this trading style, the only indicator that comes to mind is “Supertrend” due to its simplicity and the ability to give precise buy and sell signals in a trending market.

What is the Supertrend indicator?

The Supertrend indicator; is simple yet very precise in generating buy and sell signals, especially in trending markets. It is a trend-following indicator that essentially does not predict the direction of the prices; rather, once the direction is established, it will guide a trader to initiate a position following the ongoing trend and hold on to the position till the trend matures.

The Supertrend is very simple as it comprises only two parameters – period and multiplier, and therefore, while creating an intraday strategy, one should use the default parameters. It uses a 10-period average true range (ATR) and a multiplier of 3. Here, the Supertrend trades closer to prices if the multiplier is decreased and far from the prices if the multiplier is increased.

Supertrend Calculation

(High + Low)/2 + Multiplier * ATR = Up

Down = (High + Low)/2-Multiplier * ATR

As a trend following indicator, it works phenomenally well in trending markets (both uptrend and downtrend).  Where as during sideways trends, the usage of this indicator is not recommended. While using this indicator, a trader should always concentrate on the Supertrend line and the closing prices. As the indicator flips over the closing price buy and sell signals are generated. A buy signal is generated when the price closes above the Supertrend and the colour changes to green. A sell signal is generated when the price closes below the Supertrend and the colour changes to red.

Even though this indicator is simple and easy to implement, it should not be used in isolation. It is always advisable and recommended to use it with moving average and RSI.

Enhance your Trading Knowledge:

This was about the Supertrend indicator. In order to know more about such trading concepts, attend our Free Power Money Workshop.

By enrolling in this stock market course, you can learn the basics and the various aspects of trading in Futures and Options .