What is the calculation of supertrend indicator?

Supertrend Lower Line = Low – (Multiplier * ATR) In periods of higher volatility, the lines move farther away from the price, reflecting the larger potential price swings. Conversely, the lines move closer to the price in periods of lower volatility, indicating smaller potential price movements.

What is the best setting for supertrend indicator?

However, for the best supertrend settings for day trading, you can keep the values of (10,3) . To avoid getting ant false signal you can use the combination of Supertrend with other indicators like Bollinger Band or Moving Averages to confirm the trend.

What is the super trend signal indicator?

A super trend profit indicator provides signals if the super trend turns over the closing price . A buy signal is generated when the super trend line drops below the closing price and changes to green. In contrast, a sell signal is generated if the super trend line closes above the closing price and turns red.

What is the best time frame for Supertrend?

The best supertrend settings for swing trading are usually the 4-hour and 1-day charts , combined with the default 10,3 supertrend line. Additional indicators will be useful for better precision. For instance, you can consult volume based indicator such as the on-balance volume (OBV) to confirm the trend.

What is 7 and 3 in Supertrend?

A. Supertrend 7,3 is a specific configuration of the Supertrend indicator, where the settings are typically a period of 7 for the Average True Range (ATR) and a multiplier of 3 .

How to avoid supertrend false signal?

I use the following indicators when I do intraday: Simple moving average - 5. Simple moving average - 9. Crossover of the 1 and 2. MACD Signal Crossover. RSI above 80 then sell, If below 20 then buy. Nov 30, 2020

How accurate is the supertrend indicator?

The Supertrend Indicator's reliability depends on several factors: market conditions, the asset type, and your investment goals. While the Supertrend Indicator might be valuable for identifying trends and managing risk, its reliability is not absolute and should only be used as part of a comprehensive strategy.

Which indicator has the highest accuracy?

The Moving Average Convergence Divergence (MACD) indicator is often considered one of the most accurate technical indicators. That is because it uses a combination of moving averages to spot potential buy and sell signals.

What is the multiplier in a supertrend indicator?

By default, the SuperTrend Indicator uses a multiplier of 3 and a period of 14 for ATR. The ATR period represents the number of days, while the multiplier is the value by which the range is multiplied .

What is the multiplier for Supertrend?

By default, the SuperTrend Indicator uses a multiplier of 3 and a period of 14 for ATR. The ATR period represents the number of days, while the multiplier is the value by which the range is multiplied.

How do you code a Supertrend indicator?

Here is the Super trend indicator formula that helps you calculate this indicator: Down = [(High + Low / 2) – Multiplier] x ATR. Up = [(High + Low / 2) + Multiplier] x ATR. Mar 3, 2023

What are the numbers in Supertrend indicator?

When we construct the Supertrend indicator strategy, the default parameters are 10 for the Average True Range (ATR) and 3 for its multiplier . The average true range (ATR) plays a key role in 'Supertrend' as the indicator uses ATR to compute its value and it signals the degree of price volatility.

What is the win rate of the Supertrend indicator?

The win rate of the Supertrend indicator is around 67% from our calculation and tests. The win rate of the Supertrend strategy also may varies depending on several factors such as market conditions, asset class traded, timeframe, and specific parameters used in the strategy.

Super Trend Indicator- Definition, Calculation and Working (2024)

The Supertrend Indicator is a widely used tool for traders to spot market trends. By integrating the Average True Range (ATR) with a multiplier, it calculates its value, offering insights into trend direction. This indicator aids traders in making informed decisions by providing a clear understanding of market movements and potential entry and exit points in asset trading.

Here, we will explore the super-trend indicator in detail, including its parameters, formula, trading strategy, and examples.

How does a super-trend indicator work?

TheSuper Trend Indicator, which is a valuable tool for traders, combines theAverage True Range (ATR)with a multiplier to calculate its value. Here’s how it operates:

1. Average True Range (ATR):

The ATR measuresmarket volatilityby considering the range between the highest and lowest prices during a specified time frame.
It also factors in the closing price of the asset.
ATR helps traders understand theprice movement rangeand potential volatility.

2. Supertrend calculation:

The Supertrend Indicator computes a dynamic line on the price chart. This line acts as alevel of support or resistance.
The formula for the Supertrend Indicator is as follows:

Super trend indicator formula:

The super-trend indicator relies on the ATR to gauge a security's volatility. The ATR is calculated using a sequence of True Range (TR) values. The TR value is determined by finding the maximum of three values:

TR = {(currenthigh − currentlow, absolute (currenthigh − previousclose), absolute (currentlow − previousclose)}

Calculation of super trend indicator

Average true range (ATR):

Identify the sequence of TR values using the formula mentioned above.
Apply the ATR formula to calculate the ATR, incorporating the prior ATR value and the current TR.

Super-trend bands:

Utilise the ATR in the super-trend formula to calculate the upper and lower bands.
The multiplier is a key factor in determining the width of the bands and adjusting to market volatility.

Upperband = (High + Low/2) + multiplier × ATR

Lowerband = (High + Low/2) – multiplier × ATR

Super trend indicator parameters

Traders open a chart, input the super-trend indicator, and choose the multiplier and periods (ATR number of days).
Common multipliers used are 3 and 10 periods, depending on the trader's risk tolerance and market conditions.

Example

Consider an example with stock XYZ in the Indian stock market.

Data:

ATR period: 14 days
Multiplier: 2.5

Calculation:

Calculate ATR using the sequence of TR values over the past 14 days.
Apply the ATR in the super-trend formula to calculate the upper and lower bands.

Trading scenario:

If the closing price consistently surpasses the upper band, it signals a strong uptrend.
Conversely, if the closing price falls below the lower band, it may indicate a potential reversal.

Traders use the super-trend indicator's dynamic nature to adapt to changing market conditions, providing valuable insights into trend strength and potential reversal points in the Indian stock market and beyond.

Additional read: Williams %R Indicator: Definition, Formula

Pros and cons of using the super-trend indicator

Technical analysis tools like the super-trend indicator offer traders valuable insights into market trends and potential entry and exit points. However, like any tool, it comes with its own set of advantages and disadvantages.

Pros

Trend identification:
Clear trend signals: The super-trend indicator provides clear signals for identifying trends. Traders can easily recognise whether the market is in an uptrend or downtrend.
Adaptability:
Dynamic adjustments: The use of ATR makes the super-trend adaptable to changing market conditions. The indicator's bands adjust to volatility, offering a more responsive representation of price movements.
Simplicity:
Ease of use: The formula is straightforward, and the indicator is easy to implement on charting platforms. Traders, including those with less technical expertise, can incorporate it into their analysis.
Versatility:
Applicability to various assets: The super-trend indicator is versatile and can be applied to different financial instruments such as stocks, currencies, commodities, and cryptocurrencies.
Risk management:
Support for risk management: The indicator can be useful for setting stop-loss levels, aiding traders in managing risk by providing potential exit points.

Cons

Whipsaw effect:
False signals: In choppy or sideways markets, the super-trend may generate false signals, resulting in whipsaws. Traders may initiate trades based on misleading indications, leading to losses.
Late entry or exit:
Lagging nature: Like many trend-following indicators, the super-trend may lag in recognising trend changes. Traders relying solely on the indicator may enter or exit positions later than desired.
Optimisation challenges:
Sensitivity to parameters: Traders need to choose appropriate values for the multiplier and ATR period. Finding the right balance can be challenging, and what works well in one market condition may not be optimal in another.
Market-specific limitations:
Not universally applicable: While popular in certain markets, the super-trend indicator may not perform equally well in all market conditions or for all financial instruments.
Dependence on volatility:
Market volatility impact: The super-trend heavily relies on market volatility, and extreme volatility can lead to wide bands, potentially generating more signals but also increasing the risk of false signals.

How to identify buy and sell signal using super trend indicators?

Here's how you can identify buy and sell signals using the Super Trend indicator:

1. Buy signal (green):

When the super trend line moves below the closing price, it turns green, suggesting a bullish trend.
This condition indicates that the market is in an uptrend, and it signals an entry point for buying.
Traders may consider opening a long position when they see this green signal.

2. Sell signal (red):

Conversely, when the super trend line closes above the closing price, it turns red, indicating a bearish trend.
This condition suggests that the market is in a downtrend, and it signals an entry point for selling.
Traders may consider opening a short position when they see this red signal.

3. Managing trades:

The super trend indicator also serves as a dynamic stop-loss level. As the price moves, the super trend line adjusts accordingly.
For a long position, if the super trend line turns from green to red, it may be considered a signal to exit the long position.
For a short position, if the super trend line turns from red to green, it may be considered a signal to exit the short position.

4. Parameter adjustment:

Traders may need to adjust the ATR multiplier based on the volatility of the specific market. Higher multipliers result in wider super trend lines, accommodating more price fluctuations.

Additional read: What is Fear and Greed Index

Trading strategy using super trend and moving average crossover

Buy signal:

A buy signal is generated when two conditions are met simultaneously:

The super trend indicator changes to green, indicating a bullish trend.
The 5 EMA crosses above the 20 EMA, suggesting a short-term momentum shift to the upside.

Sell signal:

A sell signal is generated when two conditions are met simultaneously:

The super trend indicator changes to red, indicating a bearish trend.
The 20 EMA crosses above the 5 EMA, suggesting a short-term momentum shift to the downside.

Conclusion

The super-trend indicator is a valuable tool for traders seeking to identify and follow market trends. However, like any technical indicator, it is essential for traders to use it in conjunction with other analysis methods and consider its limitations. Understanding the pros and cons of the super-trend indicator allows traders to make more informed decisions and improve their overall trading strategy.