What is a Super Trend Indicator?

When making informed stock market decisions, a technical analysis tool or indicator might be the difference between success and failure.

Technical indicators are a set of tools traders use to create signals to help identify potential trades. There are numerous technical indicators in the market; one such indicator is the super trend indicator.

Significance of Super Trend Indicators

A super trend indicator is an indicator that can help identify whether a financial instrument is in an uptrend or downtrend. It does this by evaluating the trend of price movement for defined timeframes.

In other words, the super trend indicator links several time frames to give a trader a clearer picture of the market circumstances.

Essentially, the super trend indicator combines many periods into one, allowing one to determine if a trend is likely to continue or not. This indicator examines a range of periods, from the last three hours to the previous three months. When two or more time frames overlap, it indicates that the trend is ongoing and is likely to continue in the future.

How super trend indicator works?

Period and multiplier are two basic variable parameters based on the super-trend indicator.

Are you confused? It is essential first to comprehend the Average True Range (ATR) concept, to understand the working of super-trend indicators.

A technical indicator that gauges a security’s volatility is called the average true range (ATR). To calculate the ATR, we must first identify the sequence of TR values.

The following formula can find TR values:

TR = Max [(current high - current low), Absolute (current high - previous close), Absolute (current low - previous close)]
ATR: [(Prior ATR X 13) + Current TR]/14

Traders need this formula to comprehend how the indicator functions.

Once you have the ATR, open a chart, enter the super trend indicator and choose the multiplier and periods (ATR number of days).

A multiplier is a number that is used to multiply the ATR. Traders typically employ a multiplier of 3 and 10 periods.

What is the formula of a super trend indicator?

The formula for the super trend indicator is as follows:

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

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

How to use super trend indicator?

When utilising this indicator for intraday trading, you must first view the chart of the specific stock/index you wish to monitor and select a 10-minute time frame.

Open the chart, insert the super trend, and maintain the settings as 10 and 3 for periods and multiplier, respectively. You can also add additional settings as per your requirements.

One must also not forget to utilise stop loss when using this indicator. Stop loss for a long trade can be placed at the green indication line, and for a short position, it can be placed at the red signal line.

What are the super trend indicator parameters?

The ideal setting for the super trend indicator is 10 and 3 for periods and multiplier, respectively.

One must be aware that any modifications to these values may impact how the super trend indicator is used.

A few essential points to note are:

  • The indicator may respond more to price changes with smaller settings, resulting in more signals.
  • Higher settings will reduce market noise but might result in fewer trade signals.

How can I use super trend indicators to spot sell and buy signals?

A super trend profit indicator provides signals if the super trend turns over the closing price.

A buy signal is generated when the super trend line drops below the closing price and changes to green. In contrast, a sell signal is generated if the super trend line closes above the closing price and turns red.

Remember, no indicator is 100% true; one can also use other indicators to make a wise decision.

A trading approach utilising moving average crossover and super trend

This technique consists of a super trend and a 5-20 EMA (Exponential Moving Average) crossover.

A buy signal is made when the super trend changes to green and the 5 EMA is higher than the 20 EMA.

Similarly, a sell signal is produced when the super trend changes to red and the 20 EMA is higher than the 5 EMA.

Most effective timeframe for a super trend indicator

Position traders and swing traders typically employ longer time frames as it makes it easier to observe absolute trade signals and outperform short-term volatility.

This indication may also be applied to several periods, allowing you to utilise it for entry and exit signals on a longer time frame before moving it to a shorter one. Ideally, traders keep a minimum of 15-minute timeframe.

Benefits and disadvantages of super trend indicator

Super trend’s ability to deliver accurate indications at precisely the right moment is its biggest strength. Various trading platforms offer the indicator without charge. For intraday traders to be able to act quickly, the indicator provides one of the quickest technical analyses.

Though, the indication is not suitable in every scenario. When the market is trending, it works. Therefore, this indicator is best for short-term technical analysis.

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Frequently Asked Questions (FAQs)

No indicator is 100% true; one can also use other indicators along with a super trend indicator to make a wise decision.

The super trend indicator formula is as follows:

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

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

Here, ATR is calculated as follows, [(Prior ATR x 13) + Current TR]/14

When utilising this indicator for intraday trading, you must first view the chart of the specific stock/index you wish to monitor and select a 10-minute time frame.

Open the chart, insert the super trend, and maintain the settings as 10 and 3 for periods and multiplier, respectively.

For any trading indication, there is no ideal setting. However, for this indicator, the ideal setting is 10 and 3 for periods and multiplier, respectively.

ANo, they are not equal. 3 represents the multiplier, and 7 represents the ATR value of the previous seven candlesticks.