Are you craving a simpler way to identify shifts in market momentum?
Do you want to pinpoint optimal entry times – especially when trends transform from bearish to bullish?
Or just getting tired of delayed and mixed signals from contradictory indicators?
Well, the moment you’ve been waiting for has arrived, as I present to you…
The Supertrend Indicator!
In this article, you’ll discover:
- What the Supertrend Indicator is
- Where to locate the Supertrend Indicator
- How to utilize the Supertrend Indicator to streamline and strategize your trades.
- The art of layering the Supertrend Indicator with other essential trading tools.
- How to unleash the raw power of The Supertrend Indicator
- And finally, understanding the limitations of The Supertrend Indicator
Exciting, isn’t it?
Let’s dive right in!
What is the Supertrend Indicator?
In the world of trading, mastering the Supertrend Indicator can be extremely helpful!
The Supertrend Indicator serves as a valuable tool, offering confirmation of trends and generating buy and sell signals for both short and long trades.
It’s extremely versatile, offering the ability to detect trend direction and even provide information on where to place stop losses!
The Supertrend Indicator can be used on all timeframes and, when layered with a multi-timeframe approach with other indicators, can be an acutely profitable trading tool
So at its core, the Supertrend Indicator is a lagging indicator, meaning it is based on previous price data.
It’s also important to note that due to it being a trend-following indicator, it performs best when the price is trending rather than ranging.
Essentially, the Supertrend Indicator is built up of two key components:
ATR length and a multiplier.
The ATR length value defines the historical scope for calculating the Average True Range.
The multiplier adjusts the ATR to create distinct price bands above or below the price.
With these customizable values, you can finely tune the indicator’s sensitivity to price fluctuations.
Let me explain.
When the indicator transitions from green to red, it signals a shift from a bullish to a bearish sentiment.
Conversely, transitioning from red to green means a shift from bearish to bullish.
In this way, the Supertrend Indicator paints a zone above (Bearish) and Below (bullish) — calculated by the values you input.
The zones are established by default values, with an ATR Length of 10 and a Factor of 3.
When the price closes above or below one of these green or red zones that is when the super trend indicator will signal a buy or sell signal and switch its bias
However, it’s crucial to understand that, like all indicators, its interpretation isn’t as straightforward as green denoting ‘buy’ and red denoting ‘sell’.
By absorbing the insights shared in this article, you’ll gain a practical understanding, learning how to effectively wield the Supertrend Indicator and elevate your trading strategy!
Locating the Indicator
Before delving into the details, let’s ensure you know where to find the indicator.
Open up Tradingview and click on the indicators emblem found at the top of your screen…
When you open the indicator tab you will be met with this window…
By clicking on the indicator your chart will look something like this…
As you can see, the Supertrend Indicator is now placed on the charts!
So, now it’s on the chart – let’s get it set up correctly!
Fine-Tuning The Supertrend Indicator Settings
So let’s explore the different settings you can use for the Supertrend Indicator.
These can be adjusted to calibrate the indicator’s sensitivity to price movements.
Now, it’s important to note that there’s no definitive right or wrong way to do this.
It’s all about aligning the settings with the specific asset you’re observing, or tailoring them to suit your preferred timeframe and desired signal frequency.
Let’s look at how to adjust the settings…
After you have selected the super trend indicator from the indicators window, a small bar will appear at the top left of your screen.
When you hover over the indicator a settings icon appears.
Let’s proceed by clicking on it…
You will then find the following window appears…
The two values you can focus on are the ATR Length and the factor.
ATR Length, or Average True Range Value, defines the span over which you calculate the average true range of previous candles.
So in this instance, you are only using the previous 10 candle ranges to calculate the Average true range.
The next setting is Factor.
This refers to the green and red zones on their respective sides of the price.
So, if the current ATR value of the previous 10 candles is say, 10 pips, then the zone would print itself around 30 pips above or below the price (10 x 3 = 30).
OK, now you might be asking yourself…
“But why do these settings matter?”
“How do they alter how you view the charts?”
Well, let’s take a look at three examples with three different settings…
Supertrend Indicator Default Settings ATR 10, Multiplier 3:
This first example is on the default settings.
The configuration serves as a balanced starting point, for identifying smaller trends and shifts in market dynamics.
With this setup, you’ll notice shorter periods of both long and short positions, offering a comprehensive view of market activity.
Let’s take a look at another setup…
Supertrend Indicator Settings ATR 10, Multiplier 8:
In this second example, I’ve adjusted the multiplier to 8.
This modification steers you toward a more extended perspective of the market, leading to less frequent bias shifts.
As you can see, the zone now maintains a considerable distance from the price due to the substantially higher multiplier.
Such a setup may be preferred by traders engaged in longer-term trading strategies.
Alright, so here’s one more…
Supertrend Indicator Settings ATR 10, Multiplier:
In this final example I have reduced the multiplier is 2, resulting in much more frequent changes in the Supertrend signals.
As you can see, towards the end of the example, the indicator begins to give off a lot of false signals…
This is due to the shortened length of the multiplier and the price beginning to range more often.
Now, I recommend you take a moment to explore the distinctions between the three charts.
It’s through the adjustment of these settings, particularly the multiplier, that you can gain a greater understanding of the frequency of buy and sell signals that can be generated.
It’s also worth noting I did not adjust the ATR on any of these examples…
This is because, generally speaking, the ATR won’t make a significant difference to the chart.
The average true range of the past 10 candles will be fairly similar to that of 20, 50, or even 100.
So!
Now that you’ve got the foundations in place, it’s time to start building your castle!
Let’s dive into the exciting realm of leveraging this indicator, turning these market insights into healthy profits!
How to use the super trend indicator
You can now see why the Supertrend Indicator is a valuable tool to visualize the changes in market structure.
While focusing on which settings suit different trading strategies, let’s look at a few examples of how to trade with the super trend indicator!…
Example AUD/NZD 1-Hour Chart:
Looking at this chart, you’ll notice the price has closed above the red indicator zone of the Supertrend Indicator, changing the color of the zone from red to green.
This is an example of when you might consider taking a long trade!
Let’s explore this opportunity further and initiate it…
Example AUD/NZD 1-Hour Chart Entry:
So here’s the setup for the trade.
Note that the Supertrend Indicator eliminates the need for setting a specific take-profit level…
Instead, you can adopt a strategy of waiting for a close below the green zone to exit your trade.
Let’s see how this trade plays out…
Example AUD/NZD 1-Hour Chart Take Profit:
Considering that only the Supertrend Indicator was used – a 2.7RR trade is nothing to scoff at!
As you can see in this trade, there may have been other opportunities to exit earlier, as the price stalled and formed a resistance.
I think this example shows the power of the Supertrend Indicator and its simple yet effective rule of closing a trade when the indicator changes.
Let’s look at another example!…
Example NZD/JPY 1-Hour Chart Short Trade Entry:
With the price closing below the green zone, a trade opportunity has presented itself.
So, just like before, you can take a trade – but this time on the short side.
And again – you can leave your trade open until the price closes above the red zone.
Let’s see how it plays out…
Example NZD/JPY 1-Hour Chart Short Trade:
Even though the price is approaching a close above the red zone, by following the fundamental rule of the indicator, you should continue to allow this trade to evolve…
Let’s stay committed to this strategy and observe the eventual outcome…
Example NZD/JPY 1-Hour Chart Short Trade Take Profit:
Well, you know what they say…
Fortune favors the brave!
A 3.75 RR trade! Simply by following one simple rule!
OK, now you might be thinking…
“But Rayner, didn’t you say not to use this indicator in isolation?”
And you’re correct!
As with most indicators, their true potential shines when integrated with other trading techniques…
Let’s explore some now!
How to use Moving Averages with Supertrend
As you know, moving averages serve as a valuable tool to filter out market noise and assess the trend status of a pair or asset.
Furthermore, they provide a solid foundation for identifying support and resistance levels.
In the following example, I will show you how you could use the Moving Average 200 as support combined with the Supertrend Indicator.
You’ll see how it helps keep you in the trade, following the momentum of the market.
Here you go…
Example EUR/USD 4-Hour Timeframe MA200:
Notice how the price has begun forming a higher low?
The support of the MA200 confirms this may be the beginning of a trend shift…
…and at the same time, the Supertrend Indicator has also turned green!
These multiple indicators suggest a promising long opportunity, given that we’re positioned above the MA200, acting as support, with the indicator shifting to a bullish stance!…
Example EUR/USD 4-Hour Timeframe MA200 Trend Continuation:
So, by combining the Moving Average with the Supertrend Indicator, you’re helping remove any false signals that may occur.
Notice how, as the price edges closer to the MA200 and eventually slip below it, with the indicator shifting to red, it provides a clear signal to consider taking profits as the trend shows signs of weakening.
Let’s look at another example!…
Example USD/CAD 4-Hour Timeframe Entry Chart:
As shown in the chart above, the price has recently broken the MA200 whilst also shifting the Supertrend Indicator to red!
This could give an early indication that the price may be ready to continue down…
Let’s proceed and execute the trade!
Example USD/CAD 4-Hour Timeframe Chart:
Now, something interesting has occurred…
Price has now broken back above the Moving average…
This shift in price action could potentially indicate that the initial trade idea is incorrect!
Let’s see what happens if you ignore this potential early exit signal and continue with the trade…
USD/CAD 4-Hour Timeframe Exit Chart:
Upon closer analysis of this chart, compared to some of the successful examples, it becomes obvious that several signals were warning that the trading strategy might not play out as planned…
First, the price broke above the Moving Average while still staying below the stop loss.
Second, the price displayed erratic movements above and below the Moving Average, failing to treat it as either support or resistance.
The final and decisive warning came when the Supertrend Indicator shifted from red to green, signaling a change in market sentiment.
Now, it’s true that this particular trade would have resulted in a small loss.
But it’s important to understand that such outcomes are part of trading and will occur from time to time.
Nobody wants to lose, but it’s just not realistic to expect every trade to be profitable.
Instead, it’s essential to manage risk, cut losses while they are manageable, and avoid relying on hope to reverse unfavorable market movements.
Reading and responding to the market’s warning signs and flowing with its dynamics is the key to sustainable trading success.
Trying to swim upstream is never recommended!
So, having established realistic expectations, let’s delve into another valuable technique: using the Supertrend Indicator on multiple timeframes.
This approach empowers you as a trader to align the trend direction from a higher timeframe with the entry signals generated by a lower timeframe indicator.
Let’s explore this strategy in some more detail…
How to align the Supertrend Indicator on multiple Timeframes
Consider this: In a trending market, brief pullbacks are a common occurrence.
These retracements shouldn’t necessarily be interpreted as the end of a trend, though.
Rather, they often signify a temporary pause before the price resumes its journey in the overall trend direction.
So, what’s the takeaway?
Through the application of multi-timeframe analysis, you can pinpoint assets that are trending on a higher timeframe – identifying entry opportunities on a lower timeframe.
Luckily, the Supertrend Indicator on the lower timeframe provides the precise entry signal you need!
I’m confident that by the end of this demonstration, you’ll grasp the power of this approach.
Let me show you!…
Example USD/CAD Daily Timeframe Chart:
Look at this Daily Chart.
As you can see just like previous examples the Supertrend Indicator will change from green to red or red to green upon a trend shift.
Examining the daily timeframe, you can also observe that the price has breached the red zone and shifted from red to green, triggering a buy signal.
Now, you might wonder,
“Why didn’t you enter the trade immediately, Rayner?”
Well, trends typically have pullbacks.
I think it’s important to refrain from entering a trade right when it begins, but instead, wait for a pullback where the price temporarily pauses.
And what’s the advantage of doing so?
By waiting, you increase your risk-reward potential, as your stop loss can be placed closer to the bottom of the Supertrend green zone.
You also won’t be buying while prices are potentially at their highest!
Moreover, you may also get some extra confirmation that the price will continue in your intended trade direction…
With these considerations in mind, let’s delve into the lower timeframe…
Example USD/CAD 1-hour Timeframe Chart:
See how the price has a large push initially, as indicated by the green zone, but subsequently undergoes the anticipated pullback.
Now that the pullback has occurred, you can patiently await the fresh green signal from the Supertrend Indicator on the lower timeframe…
This would allow for a low timeframe entry but in an attempt to capture a daily timeframe trend!
So what would that look like?…
Example USD/CAD 1-hour Timeframe Chart Entry:
On this low timeframe, this trade looks to be pretty straightforwar
