Super-trend is a trend-following indicator just like moving averages and MACD (moving average convergence divergence). It is plotted on prices and their placement indicates the current trend. The indicator is easy to use and gives an accurate reading about an ongoing trend. It is constructed with two parameters, namely period and multiplier. The default values used while constructing a super indicator are 10 for average true range or trading period and three for its multiplier.
The average true range (ATR) plays an important role in ‘Super-trend’ as the indicator uses ATR to calculate its value. The ATR indicator signals the degree of price volatility. The buy and sell signals are generated when the indicator starts plotting either on top of the closing price or below the closing price. A buy signal is generated when the ‘Super-trend’ closes above the price and a sell signal is generated when it closes below the closing price.
A ‘Super-trend’ is overlaid on the price chart and when the indicator slips below the closing price, it generates a buy signal as the colour of the indicator changes into green. Contrary to this, when a ‘Super-trend’ closes above the price, it generates a sell signal as the color of the indicator changes into red.
Super-trend Indicator Formula:
Up = (high + low) / 2 + multiplier x ATR
Down = (high + low) / 2 – multiplier x ATR
How Super Trend helps:
- This indicator tells you the trend of the market.
- The green line Formed below the candlesticks and red line Formed above the candlesticks.
- The green line Indicates the bullishness of the stock price.
- The Red line indicates the bearishness of the stock price.
- Also, the green line is giving you a support zone of the bullish trend. And Similarly, Red Line is giving you a bearish trend support zone.
How accurate is super-trend strategy?
There’s no technical indicator which can be 100% accurate and so is Super Trend also. It also generates false signals in the sideways market, though it gives lesser false signals as compared to other indicators. Super-trend helps in trending market rather than when market moves sideways.
- A Super Trend is a trend following indicator similar to moving averages.
- This indicator can also be used on multiple timeframes where you place it on a larger timeframe then go down to a lower timeframe and use it for entry and exit signals.
- Super-trend gives accurate signals on precise time. Also, the indicator is available on various trading platforms free of cost.