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supertrend indicator

How to use the Supertrend Indicator for Intraday Trading

Supertrend Indicator (Guide 2018)

In this post, you will learn about supertrend indicator that gives buy sell signals and will help you to maximise profits and reduce risk in intraday trading. The Supertrend indicator is simply one of the easiest trend trading system yet it is very effective.

Supertrend as the name suggests is a trend following indicator but works much better than moving averages and MACD which are also trend following indicators. This indicator was developed by Olivier Seban and works at all the time frames and all markets. You can use on equities, futures or forex, and also in daily, weekly, hourly, 15 minutes, 5 minutes & even for scalping. You will also see examples of trades made using the supertrend indicator.

Get ready because you are going to become rich after using the supertrend indicator for intraday trading.

 

supertrend indicator

 

So are you wondering, what is the Supetrend Indicator? If you are an intraday trader or you want to make quick trading decisions based upon technical analysis then Supertrend Indicator will make things easier for you. This indicator is overlaid on the price chart and the direction of the arrow shows you the current trend. It is really simple to use.

 

Supertrend Indicator Formula

Before understanding the supertrend indicator formula, understanding the ATR is necessary as supertrend employs ATR values to calculate the indicator values. The supertrend indicator is plotted on the price chart of the stock or the index. The indicator line changes its colour between green and red based on the price movement in the underlying. Supertrend does not predict the direction, rather once the direction is stabilised it will guide you to initiate a position and suggests you stay in the position till the trend sustains.

 

Average True Range (ATR)

Average True Range (ATR) is an indicator that measures volatility. A volatility formula based only on the high-low range would fail to capture volatility from gap moves. The Average True Range was developed to capture this “missing” volatility. It is important to remember that ATR does not provide an indication of price direction, just volatility.

If the ATR of a stock is 50, then it means that on average the stock is likely to move 50 points either ways up or down. You can add this to the current day’s range to estimate the day’s range. For example the stock price is 1200, then the stock is likely to trade between 1200 – 50 = 1150 and 1200 +50 = 1250.

The ATR bands are an extension of the ATR concept. The idea is to plot an envelope around the stock price to evaluate if the stock prices are behaving “normally” or trending in a particular direction. In order to do this, the ATR band calculates the upper and lower band.

Super trend values are calculated as follows

Up = (HIGH + LOW) / 2 + Multiplier * ATR

Down = (HIGH + LOW) / 2 – Multiplier * ATR

In terms of support and resistance it goes like this

supertrend support resistance

How to use the Supertrend Indicator

When the change of trend occurs, the indicator turns its side or flips.

A buy signal is generated when the stock or index price turns greater than the indicator value. At this stage, the indicator colour turn green and you can also see a crossover of the price versus the indicator (price greater than indicator value)
A sell signal is generated when the stock or index price turns lesser than the indicator value. At this stage, the indicator colour turn red and you can also see a crossover of the price versus the indicator (price lesser than indicator value)

 

Supertrend Indicator Settings For Intraday

Supertrend is constructed with two parameters, the first parameter is the period and the second parameter is the multiplier.

Period refers to the ATR number of days. The default value is 7, which means to say that the ATR value will be calculated for the last 7 days.

The multiplier is the value by which the ATR will get multiplied. The default value is 3, so whatever is the value of ATR, it will get multiplied by 3.

The multiplier is a vital input for Supertrend. If the multiplier value is too high, then a lesser number of signals are generated. Similarly, if the multiplier value is too small, then the frequency of signals increase, hence chances of generating false buy-sell signals are pretty high. These values work best in the 15 minutes time frame for intraday trading.

 

Best Settings For Supertrend Indicator

  • (7,1.5)
  • (7,3)
  • (7,4)
  • (8,2)
  • (10,3)
  • (10, 3.5)
  • (14,1.5)
  • (100,1.65)

Feel free to tweak the values and experiment with this awesome indicator for intraday trading. Same settings might not work for each stock, so try to apply the indicator and view the previous signals given by it and choose the one which has highest efficiency or lowest number of false signals.

 

Advantages of Supertrend Indicator

  • It is precise.
  • It sends accurate signals on time.
  • It is available for free in almost all of the trading platforms.
  • It is easy to use as explained above.
  • It is fast so quick trading decisions can be made for intraday traders

 

So these are the benefits of using this indicator, but there are some flaws as well.

 

Disadvantages of Supertrend Indicator

  • It is not useful in all situations. It only works when the volatility on either side is high.
  • It  cannot be used for long term technical analysis
  • The indicator is calculated based on only two parameters, sometime more are necessary to accurately predict the market direction.

 

For those of you who are keen in trading stocks and prefer to trade intraday stocks, you use a variety of metrics and technical analysis methods for tracking trades using various indicators. To spot when to buy and when to sell is at the heart of the arsenal for any intraday stock broker and the ‘supertrend’ indicator provides you with a precise signal as to when to buy and sell stocks.

 

The Supertrend indicator can be used using any stock trading application or even using Microsoft Excel, and it creates a line graph plotted against the candlestick graphs, it is shown as an alternating line changing color from red to green, indicating the buy and sell points.

Once a buy signal is generated, the continuation of the green line is an indicator of the holding position, giving you a marker for the trailing stop loss for that particular price point. Once the stock price goes below the indicator value, a sell signal is generated. The sell signal is the point where the trader should sell, and by holding out on the sell signal, there is a possibility of a loss.

 

Supertrend Indicator in Excel

By default, Excel does not come with a Supertrend Indicator, however there are various macros available on
the internet which allows for the indicator to be used on Microsoft Excel.

 

Supertrend Indicator in Zerodha Kite

On Zerodha Kite, the proprietary trading software from Zerodha; the Supertrend indicator can be found
amongst a “Chart Study”. For the indicator to work, two inputs are required: a Period and a Multiplier.

 

Supertrend Indicator in Zerodha Pi

Pi is the next-generation stock charting and analysis software with advanced features including pattern recognition, Al and genetic algorithms, script support to generate custom trend lines and strategies and a whole host of other features. The supertrend indicator is already available in Zerodha Pi under “Chart Study” – similar to the process in Zerodha Kite.

 

Supertrend Indicator in Metastock

The Metastock 12 Pro trading platform has an inbuilt tool called indicator builder which allows for custom creation of indicators. It can be found under Tools > Indicator Builder.

 

To use the indicator, you should go to Insert > Indicator. From the list of indicators, choose your saved
indicator and apply it to any window you choose.

 

Supertrend Indicator in MT4

By default, the Supertrend indicator is not available on the MetaTrader application suite. To use the indicator,
go through the following steps:

1. Download the Supertrend MT4 indicator

2. Unzip the file and extract the contents to C:\Program Files(x86)\Meta Trader4\experts\indicator

3. Open the file using the metaeditor application

4. Launch the MetaTrader application

5. In MetaTrader, open the Navigator window. In the “Common” tab look for the “Custom |ndicators” directory
6. Locate the downloaded indicator

7. Drag and drop it onto the chart of your choice.

 

Supertrend Indicator in Amibroker

The Amibroker software suite does not come with the Supertrend indicator by default, but it can be easily added by using the following method:

1. In Amibroker, go to Analysis > Formula Editor

2. Change the name of the edit field to Supertrend in the editor

3. Paste the code in the editor

4. To use the indicator, go to Tools > Apply Indicator in the Formula Editor

5. To use the indicator for the future, save it. It is saved under Charts > Custom > Supertrend

 

Supertrend AFL

Here is the AFL for the supertrend indicator for Amibroker users. It is a highly accurate and efficient strategy to make the highest return with lowest risk.

Download it from here – Stocks Fetcher Supertrend AFL

 

Supertrend Indicator in iCharts

iCharts provides Supertrend Indicators along with real-time and constant streaming during market functional hours for chosen stocks. These customizable charts are refreshed at an interval of 3 seconds.

The charting tool is interactive and allows for the drawing of timelines, retracements, etc and can be saved to a database. This makes it available for use for future reference and if a similar chart with the same variables needs to be used again.

 

Examples

 

This is a 15 min intraday chart showing an example of a buy signal generated using supertrend indicator with settings (14,1.5)

supertrend indicator example 1

 

This is a 15 min intraday chart showing an example of a sell signal generated using supertrend indicator with settings (7,3)

supertrend indicator example 2

 

This is a 15 min intraday chart showing an example of a sell signal generated using supertrend indicator with settings (10,3)

supertrend indicator example 3

 

This is a 15 min intraday chart showing an example of a buy signal generated using supertrend indicator with settings (10,3)

supertrend indicator example 4

 

Final Note on Supertrend Indicator

The supertrend indicator works well in a trending market in addition to volume indicators but frequently gives false signals when the market is moving sideways. This indicator can be used with other tools such as the Primary Trend (which is defined as per the Dow Theory, you can read more about it here, Relative Strength Index (RSI) and Parabolic SAR in order to get even better and accurate buy sell signals for intraday trading.

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