How To Trade Using The SuperTrend Indicator

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Trading and investing can be difficult things to get right, and it’s often the difference between making money and losing money.

The SuperTrend indicator is a simple, yet effective, way of identifying current trends.

By looking at the charts below and then using the SuperTrend indicator, you can easily identify which market segments are likely to be the most active over the next several months.

If you want to be a successful trader, you need to look at the markets with an eye on the future.

That’s why the SuperTrend indicator can help you spot the next trend in the markets before anyone else.

So, let’s find out how you can use this tool to make trading decisions in the markets.

What is the SuperTrend Indicator

The SuperTrend indicator was created by Olivier Seban and was designed to detect trend shifts in the marketplace easily based on the Average True Range.

This tool combines trend detection and volatility. It can be used to detect reversals in trends and is a great place to put stop loss orders.

SuperTrend is a cutting-edge tool that provides you with buy and sells signals to help you make informed decisions.

Let’s take a quick look:

What Is The SuperTrend Indicator in Forex Trading

As you can see it’s quite a simple concept, right?

It is possible to apply it across different time periods, although you may notice that a smaller time period may lead to a higher frequency of signals being generated.

Depending on which platform you use to follow the indicator, it will show you a red print if the market is seen to be in a downtrend and a green print if the trend is upwards.

The parameters for the indicator consist of a time period and multiplier and the default setting for the TradingView platform is a period of 10 and a multiplier of 3.

The indicator takes market volatility into account when calculating its value and therefore the time period is used for its average true range calculation.

It is possible that changing to a shorter period will produce more trading signals.

The indicator’s sensitivity may be determined by how much the ATR and the multiplier factor are added together.

The lower the multiplier factor, the more trading signals there may be.

With that being said, you don’t want more – you want quality signals.

What is the formula for the SuperTrend Indicator? 

For those that want to program their own, or understand the logic that builds it, here’s the SuperTrend indicator formula for you:

Supertrend Upper Line (RED line) = (High + Low) / 2 + multiplier × ATR.
Supertrend Lower line (Green Line) = ( High + Low) / 2 - Multiplier × ATR.

How To Use SuperTrend Indicator

After you have opened the chart you want to apply the technical indicator on, select “SuperTrend” from the indicator library to set it up.

Once set up, you are ready to make decisions based on the indicator, and here is how to use the SuperTrend indicator:

Buy Signal for the SuperTrend Indicator

There is a buy signal when the SuperTrend is plotted below the closing price and the line of the indicator is green.

You will notice that the price will have traded and closed higher than the red line too.

Here is an example of a potential buy signal:

How To Use SuperTrend Indicator in Forex Buy Signal

Sell Signal for the SuperTrend Indicator

There is a sell signal when the SuperTrend is plotted above the closing price and the line of the indicator is red.

You will notice that the price will have traded and closed lower than the green line too.

Here is an example of a potential sell signal:

SuperTrend Indicator Sell Signal Potential in Forex

By following these signals, it will give you a good idea of shifts in the markets and how to interpret the moves.

There is a simple strategy you can use to enter the markets, which I’ll go through next.

Using it as a trailing stop loss

Another powerful use of the SuperTrend is to use it as a trailing stop loss.

This means you can essentially use this indicator to follow the trend and lock in profit with your stop loss along the way, just like below:

How To Use The SuperTrend Indicator as a trailing stop

As you can see in the image above, the market moved upwards and thus by following the indicator with your stop loss you would have locked in a huge portion of profit along the way.

Free SuperTrend Indicator Strategy

Okay, now you know about the indicator, it’s time to learn a cool strategy I’ve built.

It’s yours for free.

It’s a very simple concept and is suitable for beginners too.

Please remember to do your own research and of course, this is not financial advice.

This strategy is shared with you for educational purposes only.

You will need:

  • SuperTrend Indicator
  • Hull Moving Average (5 periods)
  • Hull Moving Average (20 periods)
  • RSI
  • 15-Minute Timeframe

Buy Signal:

To identify a buy signal in this trading strategy you must wait for:

The 5 HMA is trading above the 20 HMA

The SuperTrend to go green

The RSI to be trading above 50

If all the indicators meet the criteria above, it will look like this:

SuperTrend Indicator Strategy - Buy Signal - Forex

Then you simple either:

  • Open on the next candlestick; OR
  • Wait for the market to trade higher than the previous candlestick’s high – as described here:

Here I placed a buy order to enter above the high:

SuperTrend Indicator Strategy - Buy Entry - Forex

The stop loss should be the nearest support level or the previous candlestick’s low.

Then the market did as expected.

To exit the trade, you can:

  • Wait for the SuperTrend to end by switching from Green to Red.
  • Or close out at the nearest forex market structure or support and resistance level. (Your call).
SuperTrend Indicator Strategy - Buy Profit - Forex

As you can see, from this example the trade generated 38 pips whilst only risking 8 pips.

That’s a great risk reward ratio.

Sell Signal:

To identify a buy signal in this trading strategy you must wait for:

  • The 5 HMA is trading below the 20 HMA
  • The SuperTrend to go red
  • The RSI to be trading below 50

If all the indicators meet the criteria above, it will look like this:

SuperTrend Indicator Strategy - Sell Signal - Forex

Then you simple either:

Open on the next candlestick; OR

Wait for the market to trade lower than the previous candlestick’s low.

Here I placed a sell order to enter below the low:

SuperTrend Indicator Strategy - Sell Exit - Forex

The stop loss should be the nearest resistance level or the previous candlestick’s high.

To exit the trade, you can:

  • Wait for the SuperTrend to end by switching from Red to Green.
  • Or close out at the nearest forex market structure or support and resistance level.
SuperTrend Indicator Strategy - Sell Profit - Forex

As you can see, from this example the trade generated 26 pips whilst only risking 5 pips.

(It went a lot further too, smashing the support take profit level, another reason why having a trailing stop loss is a great idea!)

That’s a strong risk reward ratio.

Going to use this trading strategy? Let us know how you get on by contacting us on social media – I’d love to hear about your experience!

Best Combination with SuperTrend Indicator

This is down to taste and how you prefer to trade the markets.

The SuperTrend Indicator strategy I provided is a strong contender for the best combination with SuperTrend Indicator.

To remind you it’s using the hull moving average and Relative Strength Index.

Although, there are other successes with moving averages and other trading indicators.

The best combination is one that you feel most comfortable with in helping you generate trading ideas.

Conclusion 

After reading this article you should have grasped the concepts of the SuperTrend indicator and as an extra bonus, learned a new supertrend indicator strategy that you can use for forex trading and crypto trading.

If you found value in this content, please give this article a share and contact us on social media, I love hearing from other trading enthusiasts and how Alphaex Capital’s resources are helping individuals out.

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