Mar 17, 2023 Value Broking 7 Mins 3.0K

The intraday traders frequently use numerous technical indicators while trading. As a trader one can use various indicators like moving averages, Fibonacci retracement, stochastic oscillator, Bollinger bands, relative strength index, moving averages, super trend indicator, etc. Each indicator has its purposes and helps in making informed trading decisions. Understanding each indicator individually is the key to using a combination of all of them for your benefit.

What is a Super Trend Indicator: Introduction

Super trend indicator meaning: The supertrend indicator in TradingView assists one in the proper identification of trends. It gives clear buy and sells signals also, with enhanced accuracy. This tool that we have is the creation of Mr. Olivier Seban and Mr. Clivier Seban. 

Doing all justice to its names shows the direction of price movements of security in the market in a specific path. The security may be trending and going through a particular route towards a new price level. The super trend indicators work on the stock price chart of an asset to mark the ongoing trend properly. When they slip down, it puts the prices in red and marks them in green as they follow an upward path.

There are mainly two fundamental values, dynamic in nature, on which the supertrend indicator works. They are the period and multiplier. A sound understanding of these indicators’ working requires the knowledge of the Average True range (ATR) concept. The ATR, too, is one other indicator that provides information regarding the volatility in a market. 

It archives this by unwinding the price ranges of an asset for a specific point in time. The true range indicator among all the values obtained is the greatest one. To get this value, subtract the present low from the present high. To obtain the absolute or intrinsic value, deduct the current high or the previous close price from the current low.

How to Find Out the Value of ATR?

To find out the value of ATR, first, it is essential to have a series of TR values.

We need to divide the TR valves by the total number of periods taken. The periods have the representation of ‘n’ in the calculation formula. It will give us the moving average of the true ages. Structuring the entire process in the form of a formula to get the ATR will give is the following:

TR=Max [(current high – current low), Abs(current high – previous close​), Abs(current low – previous close​)]

ATR=(1/n)

TRi is the true range.

Where n is the number of periods or the trading days taken

The formula discussed above helps us better comprehend how supertrend indicators work. This whole calculation keeps working behind the scenes. Traders will execute formulas on the trading platforms to identify the trade process signals. To do this, you first need to look for the supertrend indicator and pick the values of the ATR number of days, as we earlier saw. 

Then choose the multiplier, the value to which we will multiply the ATR obtained before. The traders generally pick the ten periods and use 3 as the multiplier in most cases. The shorter values of ‘n’ are useful in getting a higher number of signals. It will also be more reactive to the changes in the price of an asset. A very long value of the ‘n’ is capable of lowering the important day-to-day prices. It will then recall providing very few buy or sell signals that the traders can use while trading.

How to Use the SuperTrend Indicator?

Now you have understood the trend indicator meaning, let’s understand how to use it. To use the super trend indicator, one will have to open the chart of the concerned asset that you wish to follow. Then you will have to set the time interval if you are into intraday trading activities. Generally, traders set the time interval of ten minutes for intraday trading which is the default setting. Another way to go through this process is to use the software.

After you open the stock chart, insert the super trend indicator and adjust the settings to ten and three of to. If convenient, you can insert your settings according to your needs. You should take care that it is good to execute a stop loss while this Indicator. It is very productive as it can improve the chances of earning more through loading in the stock market. 

In a long position, you can choose to insert the stop loss immediately at the line indicating green. You can go for immediate stop loss placement during a short position just at the red line. Inculcating this in your trading strategies can bring you huge rewards.

The Parameters for Using Supertrend Indicator

The default parameter for using this indicator is periods 3 and 10.

One must note that any changes to these settings can affect super trend indicators—however, there is no such setting as the best setting for any trading indicator. 

In addition to this, know that the more you change the settings, the higher the trading system over-optimizes for that point in time. Also, keep in mind the following two facts.

  • Smaller settings always optimize the indicator to be more responsive to the prices. It will lead to the generation of more trade signals. 
  • Higher settings churn out the noise from a market. It leads to generating a lower number of trading signals.

Supertrend Indicator Formula

The calculation of the super trend indicator involves the following steps.

Up = (high + low / 2 + multiplier  x  ATR

Down = (high + low) / 2 – multiplier x ATR

Calculating the Average True Range :

[(Prior ATR x 17) + Current TR] / 18

Here, 18 stands for the period. So, to find the ATR multiply the previous ATR obtained by 17. Then find the sum of the latest TR. Finally, divide the result by the period.

Hence, ATR plays a vital role in the super trend indicator.

How One Can Identify the Buy and Sell Signals Through a Super Trend Indicator?

The Supertrender is a trending indicator. Being so, it has the edge to work excellently in both up trending markets and down trending ones. It is quite easy to spot the buy and sell signals as it flips over closing prices. When the indicator closes below this price point, it gives itself a green color. It thus produces a buy signal. Thus, when the indicator closes above the price, one receives a signal to sell. The indicators turn red.

Every indicator may lack to a small extent. Such is the case with super trends too. In a very few instances, the indicator may give out untrue signals in a sideways market. However, such an event is relatively less when seen concerning the other indicators. Nevertheless, one can pair the indicator with some others for satisfactory outputs.

Conclusion

The Supertrend indicator is a handy tool that offers support and resistance levels to traders for entering and exiting trades. In addition, it hints at small time frames. The indicator is one of the best in trending markets; the drawback, however, is that it may be a little ineffective when markets swing sideways. 

So, it is best to use the indicator associated with other Indicators. This way, one can expect to get the best results. Hope this article is helpful for you to understand what is a super trend indicator, especially the super trend indicator meaning properly.