Supertrend indicator? How does it work? Best Settings

Have You heard about super Trend indicator ?

What is SuperTrend indicator?

The SuperTrend indicator is a popular trend-following technical analysis indicator used to identify bullish and bearish market trends. It is calculated using the average true range (ATR) and a user-defined multiplier. The indicator plots two lines on a price chart, one line represents the upward trend and the other line represents the downward trend. The SuperTrend indicator can be used in different time frames and can be adjusted to suit a trader's specific needs. The basic idea behind the SuperTrend indicator is that it helps traders identify market trends, and based on the trend direction, they can make decisions to buy or sell a security. However, it's important to note that the SuperTrend indicator should not be used as a standalone tool for making trading decisions, and it's always advisable to use a combination of technical and fundamental analysis for more informed investment decisions.

How does Supertrend indicator work? 

The SuperTrend indicator is a technical analysis tool that works by combining two key indicators: the average true range (ATR) and a moving average. The ATR is used to determine the volatility of a security, while the moving average is used to generate trend signals.

The SuperTrend indicator uses the ATR to calculate the trend of a security, and then generates a buy or sell signal based on the direction of the trend. If the SuperTrend line is above the price, it generates a sell signal, indicating that the trend is down. If the SuperTrend line is below the price, it generates a buy signal, indicating that the trend is up.

The SuperTrend indicator can be used in conjunction with other technical analysis tools, such as chart patterns and trend lines, to provide a more comprehensive analysis of a security. However, it's important to keep in mind that technical analysis is not a perfect science and that past performance is not indicative of future results. Additionally, it's crucial to use stop-loss orders to limit potential losses, as the volatility of the market can result in rapid price movements.

The SuperTrend indicator can be used in a number of ways, here are some steps on how to use it:

• Choose the time frame: Start by selecting the time frame that you want to analyze. The SuperTrend indicator can be used in different time frames such as 5 minutes, 15 minutes, hourly, daily, etc.

• Select the ATR period: The SuperTrend indicator uses the average true range (ATR) to calculate the trend. You need to select the number of periods that the ATR should be based on. A common period used is 7.

• Select the multiplier: The multiplier is a user-defined value that is used to calculate the SuperTrend indicator. The default value is often 2, but you can adjust it to suit your trading style.

• Plot the indicator: Once you have selected the time frame, ATR period, and multiplier, you can plot the SuperTrend indicator on your price chart. You will see two lines plotted on the chart, one line represents the upward trend and the other line represents the downward trend.

• Interpret the signals: The SuperTrend indicator generates buy and sell signals based on the direction of the trend. If the price is above the upward trend line, it is considered a bullish signal and suggests that you should buy. If the price is below the downward trend line, it is considered a bearish signal and suggests that you should sell.

• Confirm the signals: It's important to confirm the signals generated by the SuperTrend indicator with other technical analysis tools such as support and resistance levels, moving averages, etc. This will help increase the reliability of the signals generated by the SuperTrend indicator

Supertrend Indicator formula

The formula for the SuperTrend indicator is a combination of the average true range (ATR) and a user-defined multiplier. 

Here is the formula:

Uptrend Line = (High + Low) / 2 + Multiplier * ATR

 

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

Where:

High: The highest price of the period being analyzed. 

 

Low: The lowest price of the period being analyzed

 

Multiplier: A user-defined value used to adjust the sensitivity of the indicator. The default value is often 2, but it can be adjusted to suit a trader's specific needs.

 

ATR: The average true range, which is a measure of volatility. The ATR is calculated using a user-defined number of periods. A common period used is 7.

 

Once the SuperTrend indicator has been calculated, it can be plotted on a price chart. The uptrend line represents the upward trend and the downtrend line represents the downward trend. The signals generated by the SuperTrend indicator are based on the direction of the trend and the position of the price relative to the trend lines. If the price is above the upward trend line, it is considered a bullish signal, and if the price is below the downward trend line, it is considered a bearish signal.

How SuperTrend indicator generates buy and sell signals based 

The SuperTrend indicator generates buy and sell signals based on the direction of the trend and the position of the price relative to the trend lines. Here's how to interpret the signals:

Buy signal: If the price is above the upward trend line, it is considered a bullish signal, and the SuperTrend indicator generates a buy signal. This suggests that the market is in an uptrend and that it may be a good time to buy.

 

Sell signal: If the price is below the downward trend line, it is considered a bearish signal, and the SuperTrend indicator generates a sell signal. This suggests that the market is in a downtrend and that it may be a good time to sell.

 

It's important to note that the SuperTrend indicator should not be relied upon as the sole basis for making investment decisions. It is always advisable to use a combination of technical and fundamental analysis and to use stop-loss orders to limit potential losses. The SuperTrend indicator can be a useful tool in helping to identify trends, but it should be used in conjunction with other technical analysis tools and indicators to confirm signals and increase the reliability of investment decisions.

SuperTrend indicator Setting

The most common super trend indicator setting for different time frame are as follow, you might test these settings on demo account before trying on real trades

For Minute Chart - 5Minute / 15 minute.

Here are some commonly used SuperTrend indicator  setting for Minute Chart 

Time frame: For a minute chart, a time frame of 5 or 15 minutes is often used.

ATR period: A common ATR period used on a minute chart is 7.

Multiplier: A commonly used multiplier on a minute chart is 1.5. However, this can be adjusted to suit your needs. 

 

For Hourly  Chart - 1 hour/ 4 hour.

Here are some commonly used SuperTrend indicator  setting for hourly Chart 

Time frame: For an hourly chart, a time frame of 1 hour is often used.

ATR period: A common ATR period used on an hourly chart is 7.

Multiplier: A commonly used multiplier on an hourly chart is 2. However, this can be adjusted to suit your needs. 

 

For Daily  Chart - 1 day.

Here are some commonly used SuperTrend indicator  setting for Daily Chart 

Time frame: For a daily chart, a time frame of 1 day is often used.

ATR period: A common ATR period used on a daily chart is 7.

Multiplier: A commonly used multiplier on a daily chart is 3.

 

Note: A higher multiplier will result in a more sensitive indicator, while a lower multiplier will result in a less sensitive indicator.

The accuracy of the SuperTrend indicator can vary based on market conditions and the specific settings used. Like all technical indicators, the SuperTrend indicator is not a perfect tool and there can be false signals or delayed signals.

One of the challenges with the SuperTrend indicator is that it only provides signals based on the current trend and does not take into account other market factors, such as news events or fundamental data. As a result, it's important to use a combination of technical and fundamental analysis when making investment decisions, and to always be aware of current market conditions.

Additionally, the accuracy of the SuperTrend indicator can also be affected by the specific settings used, such as the time frame, ATR period, and multiplier. It's important to test different settings and to choose a combination of settings that provide the best results for your specific needs and preferences.

In general, the SuperTrend indicator is a useful tool for traders and investors looking to identify trends in the market and make investment decisions based on that trend. However, it's important to keep in mind that no single tool or indicator can provide a perfect and accurate market analysis, and that it's crucial to always use caution and to limit potential losses by using stop-loss orders.