How to use Supertrend Indicator : A Comprehensive Guide for Intraday Traders

When it comes to intraday trading, using the right indicators can make all the difference in identifying profitable opportunities. Among the myriad of technical analysis tools available, the Supertrend indicator stands out for its simplicity and effectiveness. In this blog, we will delve into the intricacies of the Supertrend indicator, understand its calculation, and explore various strategies to use it for successful intraday trading.

What is the Supertrend Indicator?

The Supertrend indicator is a trend-following tool similar to moving averages. It aids traders in determining whether a financial instrument is in an uptrend or a downtrend. The indicator is plotted on the price chart and helps provide clear buy and sell signals during trending market conditions.

How does the Supertrend Indicator work?

The Supertrend Indicator’s calculation primarily involves two parameters: the period and the multiplier. Before understanding this, it’s essential to grasp the concept of Average True Range (ATR). ATR is a measure of an asset’s volatility, and it plays a crucial role in the Supertrend indicator.

The Supertrend formula:

Upper Band = (High + Low) / 2 + multiplier x ATR Lower Band = (High + Low) / 2 – multiplier x ATR

What is the best settings for Supertrend Indicator?

The default settings for the Supertrend Indicator are 10 for the period and 3 for the multiplier. These values can be adjusted depending on your trading style and the market’s volatility.

How to do Intraday Trading

How to Use Supertrend Indicator for Intraday Trading

Chart Setup

Open the chart of the specific stock or index you want to trade and set the time frame to 15 minutes for intraday trading.

Indicator Application

Insert the Supertrend indicator on the chart and set the parameters to 10 and 3 for the period and multiplier, respectively. You may customize the settings to suit your preferences.

Stop Loss Placement

Always use stop-loss when trading with the Supertrend indicator. For long positions, place the stop loss below the green indicator line, and for short positions, place it above the red indicator line.

Identifying Buy and Sell Signals:

Buy signals are generated when the Supertrend line flips below the closing price and turns green. Conversely, sell signals occur when the Supertrend line flips above the closing price and turns red.

Read more: Futures vs Options

Trading Strategy using Supertrend and Moving Average Crossover

A powerful intraday trading strategy involves combining the Supertrend indicator with a 5-20 Exponential Moving Average (EMA) crossover.

Buy Signal: When the Supertrend line turns green (below the price) and the 5 EMA crosses above the 20 EMA.

Sell Signal: When the Supertrend line turns red (above the price) and the 20 EMA crosses above the 5 EMA.

Best Timeframe for the Supertrend Indicator

For intraday traders, the 15-minute chart is an ideal timeframe to use the Supertrend indicator. Swing traders and position holders can also employ longer timeframes for broader market analysis.

Pros and Cons of the Supertrend Indicator

Pros:

• Accurate signals during trending market conditions
• Available on various trading platforms at no cost
• Quick and easy technical analysis for intraday traders

Cons:

• Not effective during sideways or non-trending markets
• May generate false signals occasionally

Conclusion

The Supertrend indicator is a valuable tool for intraday traders seeking clear buy and sell signals during trending market conditions. By understanding its calculation, parameters, and application in conjunction with other indicators, traders can harness the power of the Supertrend indicator to make well-informed trading decisions. Remember to apply proper risk management and continue learning to refine your intraday trading strategies with this powerful indicator.

Frequently Asked Questions (FAQs)

How accurate is the Supertrend strategy?

The Supertrend strategy, like any other technical indicator, is not 100% accurate. While it provides accurate signals during trending markets, it may generate false signals in sideways or choppy markets. Traders should consider using other indicators or filters to improve the accuracy of their trading signals.

How is the Supertrend indicator calculated?

The Supertrend indicator is calculated using the Average True Range (ATR) and a multiplier. The upper and lower bands are derived by adding or subtracting the product of the ATR and the multiplier from the average of the high and low prices. The Supertrend line flips based on the closing price’s relation to these bands.

How can I use the Supertrend indicator for intraday trading?

To use the Supertrend indicator for intraday trading, open the chart of the stock or index you want to track and set the time frame to 15 minutes. Insert the Supertrend indicator with default settings of 10 and 3 for the period and multiplier, respectively. Consider using stop-loss orders for risk management.

What timeframe and settings are best for the Supertrend indicator for day trading?

For day trading, the 15-minute chart is commonly used with default settings of 10 and 3. However, traders can adjust the period and multiplier based on their preferences and the market’s volatility.

Is the Supertrend indicator the same as a moving average?

No, the Supertrend indicator is not the same as a moving average. While both are trend-following indicators, the Supertrend uses the Average True Range (ATR) to determine its bands, whereas moving averages solely rely on price data.

How to use the Supertrend indicator?

To use the Supertrend indicator, follow these steps: a. Open the chart of the stock or asset you wish to analyze. b. Insert the Supertrend indicator onto the chart. c. Set the parameters, such as period and multiplier (e.g., 10 and 3, respectively). d. Identify buy and sell signals based on the Supertrend line’s position relative to the closing price (green for buy, red for sell). e. Implement appropriate risk management measures, like stop-loss orders, when trading with the Supertrend indicator.

Can the Supertrend indicator be used on TradingView?

Yes, the Supertrend indicator is available on the TradingView platform. Traders can easily access and apply the indicator on various charts for technical analysis.

Disclaimer: The information in this blog is for educational and informational purposes only. Trading derivatives involves risks, and it is essential to do your own research and seek professional advice before making any investment decisions.