Are you searching for SuperTrend Indicator? This post if for you!
The Supertrend Indicator (ST), developed by Olivier Seban, was born as a tool to optimize the exit from trade, which is a trailing stop.
Today is one of the most used tools by traders.
In this tutorial, we will explain what it is, how it is used, and how to calculate it. You can also download SuperTrend free versions for TradeStation, MultiCharts, MetaTrader.
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What is SuperTrend Indicator?
The ST Indicator ST belongs to the category of follower trend indicators. These types of indicators signal the direction of the trend and highlight the continuation or changes of direction.
This indicator works well in a trending market.
And very similar in his conception to Wilder’s Parabolic SAR. However, the Supertrend has the merit of positioning itself horizontally, in a sort of stand by, in moments of price laterality, avoiding getting us out of position before time.
We must always remember that all trend-follower indicators have a common flaw: they warn of the change of trend AFTER the change has taken place, not PRIMA.
They are all indicators that update with an inevitable delay; they are not anticipators of the trend.
Let’s see the two indicators in comparison: the SuperTrend is represented with the solid line, while the Parabolic SAR with the classic green dots (up) and red dots (down)
It is immediately noticeable that the continuous color change of the Parabolic SAR gives rise to many more false signals than the SuperTrend
However, the ST has two enormous merits:
1) It is straightforward to use because the identification of the trend takes into account the average volatility of the asset.
2) It can be used with any timeframe and all financial instruments (shares, indexes, forex).
Others do not do so and, therefore, often force them to leave the market too early.
On the other hand, the SuperTrend filters many false signals, and this allows us to keep the position open for longer and increase the average profit.
A trend follower strategy to be successful must remain on the market as long as possible.
The longer you stay on the market, the more trends you can take advantage of.
At the same time, it also needs to come out quickly if the trade is going the wrong way.
How do you use the ST Indicator?
From a graphical point of view, the Super Trend appears as a red or green line that accompanies price trends.
The red line identifies periods characterized by a negative trend, while the green line indicates market periods with a positive trend.
When the line is below the graph, the trend will be upward, and it will, therefore, be preferable to open long positions.
When the indicator line is above the graph, the trend will be downward, and it will, therefore, be preferable to open short positions;
There are 3 different ways you can use this indicator:
The ST show us the current trend, remember that we do not want to go against the primary uptrend or downtrend.
So if the underlying trend is upward, we will only do long trades, if downward only short trades.
In this way, we filter several false “counter-trend” buy signal or sell signal.
The reversal of a trend occurs when prices cross the indicator line positioned at a given level from one side to the other.
This level is defined as a roof or floor, depending on whether it is above or below the price scale.
We need it as a trailing stop.
The ST can be used to manage the exit from another trading strategy.
This indicator will keep us in the extended position until the indicator remains green or short until the indicator remains red.
We’ll get out as soon as the color changes.
SuperTrend Trading Strategy
We could use a Supertrend Trading Strategy to find buy or sell signal.
We open a long position at the change of color from red to green (buy signal is generated).
Vice-Versa we can opening a short trade when green become red (sell signal is generated).
Positions will close the next time the indicator changes color.
Theoretically, we can always stay in the market – stop & reverse strategy – moving from long to short all the time.
With this technique, there will be no shortage of false signals, especially in phases of prolonged laterality.
It will, therefore, be of fundamental importance to close the position in stop-loss if the market does not go in the desired direction.
We prefer to suggest that you do not use it alone but integrate it into your trading systems with the use of other tools.
Even if the ST is a very valid indicator, it is better to use it in combination with at least one other.
We can use it together with the CCI, Momentum, ADX, RSI.
Two SuperTrend Indicators – The Double Strategy
There is also the possibility to take advantage of ST not in combination with another technical indicator, but by combining two ST indicators.
We can then apply the same indicator to the graph but with two different settings, one fast and one slow.
In this case, when the fast curve crosses from bottom to top the slow curve, we have a long signal.
When the fast curve returns below the slow curve, it is time to close the operation. We practically expect both curves to have the same color.
Which Timeframe to use for SuperTrend Indicator
At first, we said that the SuperTrend has the advantage of being able to be used in every timeframe.
In general, however, on intraday trading timeframes it loses its effectiveness, there is no single rule, it is advisable to make a few attempts on the financial instrument we intend to trade.
Although it should always be remembered that the real trend exists only on long time frames, so from the daily up.
SuperTrend Indicator MultiTimeFrame
Always to limit false signals, we have built a SuperTrend Multi Time Frame indicator.
You can find the article and indicator to download for free at this link.
How is ST Indicator calculated?
The ST is calculated based on a coefficient that is applied to the average volatility of the period considered.
The Super Trend indicator is calculated using the Average True Range (ATR).
The Average True Range is an indicator that calculates the average range of the last X seats and measures volatility.
Once volatility is identified, the Super Trend is calculated by applying to the latter a volatility multiplier and a coefficient relative to the observation period over which volatility is calculated.
It must always be borne in mind that the higher the weight of volatility, the wider the range of tolerance before a reversal of trend occurs.
The SuperTrend Indicator Formula:
Download Super Trend Indicator for Free
This is our custom Super Trend indicator coded in EasyLanguage for TradeStation and MultiCharts. You can download it for free.
Is the ST Indicator a great indicator?
The ST is, indeed, a great indicator.
However, we always remember that when long sides are formed, the Supertrend generates many false signals, but it is still the biggest flaw of all the trending indicator.
Can I use the ST for intraday trading?
It is certainly possible to use it but we do not like it as a trading system because in the market the ongoing trend exists are on high timeframes. A correct ST trading strategy should be based on daily timeframes or higher.
Is it the best trending indicator?
For us it is the best trending indicator. The Super Trend Indicator is the one that provides fewer false signals, compared to parabolic sar for example
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