Supertrend Indicator : How to use for Intraday trading?

A very common problem with intraday traders is which indicators work well for the intraday trades.

Being an intraday trader, chances are that you use technical analysis to identify trades based on different parameters.

However, the first indicator which comes to our mind for intraday trading is the Supertrend indicator due to its simplicity.

It can give you precise buy or sell signals in a trending market along with the best super trend strategy for intraday.

What is the Supertrend indicator?

A Super Trend is a trend following indicator similar to moving averages. It is plotted on price and the current trend can simply be determined by its placement vis-a-vis price. It is a very simple indicator and is constructed with the help of just two parameters- period and multiplier.

When we construct the Supertrend indicator strategy, the default parameters are 10 for 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.

How to Use the Supertrend Indicator?

For using this indicator, you need to open the chart of a particular stock that you want to track and set a time interval of 10 minutes when doing intraday trading.

You can use any good charting software. After opening the chart insert supertrend and keep the settings as 10 and 3.

You can also insert your own settings as well.

However, while you using this indicator, you should not avoid putting your stop loss.

For a long position, you can put stop loss right at the green indicator line. For a short position, you can put it at the red indicator line.

Using supertrend along with a stop loss pattern is the best way for earning the best wealth in trading.

What are the Parameters for the Supertrend Indicator?

The default parameter is a period of 10 and  3.

You should note that any changes to these numbers can affect the use of the Supertrend indicator.

There is no best setting for any trading indicator.  As well, the more settings you change can lead to a trading system that is over-optimized for that point in time.

You should note the following points;

• Smaller settings can make the indictor more reactive to the price which means, more signals
• Higher settings will remove the noise from the market at the risk of less trading signals

Learn from Market Experts

• Super Trading Strategies with Supertrend
• Best ways to pick stocks for Intraday Trading

Supertrend Indicator Formula

The supertrend indicator calculation is shown below–

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

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

Calculation of Average True Range –

[(Prior ATR x 13) + Current TR] / 14

Here, 14 indicates a period. Hence, the ATR is derived by multiplying the previous ATR with 13. Add the latest TR and divide it by period.

Thus, ATR plays an important role in the supertrend technical analysis indicator.

How to identify buy and sell signal using supertrend indicators?

Super Trend being a trending indicator works beautifully in trending markets (both uptrends and downtrends). The buy-sell signal can easily be identified when the indicator flips over the closing price. A buy signal is generated when the Super Trend closes below the price and the color changes to green. On the other hand, a sell signal is made when the Super Trend closes above the price and the color of Super Trend turns red.

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. So you can combine Super Trend with other indicators to get better trading signals.

Trading strategy using Supertrend and Moving Average Crossover

This strategy basically comprises of Super Trend and 5-20 EMA crossover. When the Super Trend turns green (i.e. Super Trend is below the price) and 5 EMA is above 20 EMA, a buy signal is generated. Similarly, when the Super Trend turns red (i.e. Super Trend is above the price) and 20 EMA is above 5 EMA, a sell signal is generated.

The below is the chart of Nifty. The buy signals are shown with the help of green arrows and the sell signal is shown with the help of red arrows. As you can see in the chart that you can really catch big moves based on this strategy and keep trailing stop loss with the help of Super Trend to protect your profits.

Also Read: How to trade using moving average on different timeframes?

Best Timeframe to Use in Supertrend Indicator

As for swing traders and position holders, they can use longer timeframes.

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.

The lowest timeframe you should use is the 15-minute chart.

Pros and Cons of Supertrend Indicator

Supertrend gives accurate signals on precise time. Also, the indicator is available on various trading platforms free of cost.

The indicator helps the intraday traders to make faster decisions.

It is simple to use and understand.

However, the indicator is not appropriate for all the market phases, It works best when the market is trending.

You can watch the video below to get a better idea of the concept and use of Supertrend indicator:

A Super Trend indicator can be used on equities, forex, or futures on various time frames including hourly, daily, weekly, etc.

However, Super Trend needs to be used in conjunction with other indicators like RSI, Parabolic SAR, MACD, etc to receive filtered signals.

Moreover, Supertrend also works as a trailing stop-loss for the existing trades and acts as strong support or resistance.

Watch the video to learn more about this indicator:

Frequently Asked Questions 

For stock related queries visit web.stockedge.com

Key Takeaways

• 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.
• Supertrend gives accurate signals on precise time. Also, the indicator is available on various trading platforms free of cost.

Happy Learning!