Supertrend Indicator

The Super Trend Indicator is a technical analysis tool used in forex trading to identify potential trend reversals. It is based on the concept of trend following, which is a strategy that involves identifying the direction of the market trend and then following it in order to try and catch some moves and bag some pips.

What is the Supertrend Indicator?

The Super Trend Indicator is a popular choice among traders because of its simplicity and effectiveness in identifying trend changes. It is based on the Average True Range (ATR) and the closing price, which are used to calculate the indicator’s value. When the indicator’s value exceeds a certain threshold, it signals a potential trend reversal.

It is easy to use

As it only requires traders to look for crossovers between the indicator line and the price action to identify potential trend reversals.

It is a lagging indicator

Which means that it follows the market trend rather than predicting it. This makes it less prone to false signals compared to some other leading indicators, although still very possible.

It is dynamic

Meaning that it adjusts its threshold based on the volatility of the market. This helps it to better adapt to changing market conditions.

It is reliable

As it is based on widely used and well-established technical indicators such as the ATR, it is widely used by traders around the world, which adds to its credibility and reliability.

The Super Trend Indicator was developed by French trader Claude Boursiquot in the late 1990s. It has since become a popular choice among traders, especially those who use trend following strategies.

To use the Super Trend Indicator in the market, traders simply need to apply it to their chart and look for crossovers between the indicator line and the price action. A crossover above the price action indicates a potential buy signal, while a crossover below the price action indicates a potential sell signal.

Super Trend Strategy

Buy Signal

  • When the indicator line crosses above the price action, indicating a potential trend reversal from bearish to bullish.
  • When the indicator line remains above the price action, indicating a continuation of the bullish trend.
  • When the indicator line is flat or slightly inclined upwards, indicating a range-bound market or a potential uptrend.
  • When the indicator line is below the price action but close to it, indicating a potential trend reversal from bearish to bullish.
  • When the indicator line is rising, indicating a strong uptrend.
  • When the indicator line is above the price action and the ATR is relatively low, indicating a potential trend reversal from bearish to bullish in a low-volatility market.
Supertrend Indicator Buy Signal
Supertrend Indicator Buy Signal

Sell Signal

  • A sell signal may be indicated when the Super Trend Indicator line falls below the current price. This could potentially signify a change in the market trend from bullish to bearish.
  • If the indicator line remains below the price, it may suggest a continuation of the bearish trend.
  • If the Super Trend Indicator line is flat or slightly sloping downward, it may indicate a range-bound market or a potential downtrend.
  • A sell signal could potentially be signaled if the indicator line is above the price, but close to it. This may suggest a possible trend reversal from bullish to bearish.
Supertrend Indicator Sell Signal
Supertrend Indicator Sell Signal

Super Trend Indicator Pros & Cons

Pros

  • It is easy to use, with clear buy and sell signals indicated by crossovers between the indicator line and the price action.
  • It is based on widely used and well-established technical indicators, which adds to its reliability.
  • It is dynamic, adjusting its threshold based on market volatility to better adapt to changing market conditions.
  • It is a lagging indicator, which makes it less prone to false signals compared to leading indicators.
  • It is widely used by traders around the world, which adds to its credibility.
  • It can be used in conjunction with other technical indicators and analysis techniques to provide a more comprehensive view of the market.

Cons

  • Timing Issues, which means that it follows the market trend rather than predicting it. This can result in traders entering positions too late and potentially missing out on some of the potential profits.
  • It is based on the ATR, which is a volatility indicator. As such, it may not be as effective in low-volatility markets where the ATR is relatively low.
  • It may not be suitable for traders who prefer to use leading indicators or who have a shorter time horizon.
  • It is a trend-following indicator, which means that it is not designed to identify trend reversals or tops and bottoms.

Conclusion

The Super Trend Indicator is a technical analysis tool that is based on the Average True Range (ATR) and the closing price. It is used to identify potential trend reversals in the market and is widely used by forex traders around the world. It is easy to use, with clear buy and sell signals indicated by crossovers between the indicator line and the price action. You can see my Double Supertrend Trading Strategy for some more ideas about how to use this indicator.

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