Supertrend Indicator - Formula, Settings, PDF, Strategy for Scalping, and Intraday Trading
Updated: Oct 22, 2022
The super trend indicator was developed by Olivier Seban, and it has become a popular tool for traders in recent years. It can be used to scalp the markets or trade them intraday.
It is simple to use and provides visual signals to help you confidently enter and exit trades. This blog post will explore using the super trend indicator in scalping and intraday trading.
We will also examine some of the pros and cons of using this indicator. Finally, we will provide some tips for traders who want to use the super trend indicator in their trading strategies.
Content
Supertrend Strategy for Intraday Trading
Supertrend Strategy for Scalping
What is Supertrend Indicator?
Supertrend is a trend following indicator quite similar to Moving Average Convergence Divergence (MACD) or Moving Averages (MA). However, with a simple commonsense, we can also use it in a range-bound market.
It is directly plotted on the price chart, and the color of the supertrend indicator indicates the ongoing trend in a particular scrip.
If the color of the supertrend is green and the price is above the supertrend indicator, then it denotes an uptrend.
Similarly, if the color of the supertrend is red and the price is below the supertrend indicator, then it denotes a downtrend.
Supertrend Indicator Formula
Average True Range (ATR) plays a crucial role in arriving at supertrend values:
The supertrend indicator calculation is shown below–
Supertrend Upperband = (high + low) / 2 + multiplier x ATR
Supertrend Lowerband = (high + low) / 2 – multiplier x ATR
Calculation of Average True Range – [(Prior ATR x 13) + Current TR] / 14
Here, 14 indicates a time period. Hence, the ATR is calculated by multiplying the previous ATR with 13. Add the latest TR and divide it by time period.
Supertrend Indicator Settings
Supertrend is plotted using two parameters:
ATR Length (default value is 10) and
Factor (default value is 3)
Traders can change these default parameters. However, it also changes the way of plotting the supertrend values. It is sensible to use the default parameters unless you know what you are doing with the changes.
Supertrend Indicator Strategy for Intraday Trading
Super Trend works beautifully in trending markets. However, it is risky to plan a long trade whenever the indicator turns green or a short trade whenever the indicator turns red.
Because in intraday trading, markets are often volatile, it can change the color (red to green and vice-versa) quite frequently. Hence it is better to wait for the next pullback for long trade (or bounce for a short trade). Image 3 shows the example of supertrend behavior in volatile market conditions.
Any market will not move in a straight line. It gives small pullbacks (due to profit booking), gathers energy, and then it moves upside. We can use the same logic for intraday trading using the supertrend indicator.
Image 5 shows a long trade example in intraday trading.
It is a Banknifty 15-min chart (because 15-min is the ideal timeframe for intraday trading in India).
Supertrend displayed green which indicates the beginning of the uptrend in 15-min timeframe. We should not look for a long trade here as it can be risky.
But later, it gives the pullback near supertrend indicator, which is the right opportunity to take a long trade.
Traders can also use powerful candlestick patterns such as bullish engulfing, hammer, etc to confirm the proper entry.