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A Comprehensive Guide to Understanding the Supertrend Indicator

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Written by Timothy Sykes
Updated 9/17/2023 22 min read

The supertrend indicator is a tool traders use to help determine trends. It appears on the price chart and its relation with the share price helps us predict the overall direction.

A lot of new traders lose money because they don’t use any technical indicators.

They open a brokerage account and think they’re going to be the next Warren Buffet.

“How hard can it be? It’s mostly intuition.”

By now you probably realized … market profits are elusive.

That’s why I use popular patterns to trade. And I only trade the best setups.

Here’s how I find the best setups: key indicators.

Indicators like the supertrend help me determine trends. And if all my indicators line up, that means it’s time to make a trade.

A lot of people don’t realize, successful trading usually involves not trading at all.

I wait around a lot because I only see perfect setups a few times a week.

If you’re bored, sit on your hands.

Stay out of bad plays. Only take the good ones. And the results will speak for themselves.

Here’s how the supertrend indicator can help … 

Table of Contents

What Is the Supertrend Indicator?

The supertrend indicator is a trend-following tool used by traders to identify the direction of an asset’s momentum. It’s not about guessing; it’s about reading the trend and making informed decisions.

If you struggle to find the right stocks … indicators can help with that too.

Watch my video below …

The supertrend indicator comprises two lines: the green line and the red line, representing buy and sell signals, respectively. In a nutshell, this indicator helps in detecting uptrends and downtrends, simplifying your trading decisions.

Significance of Supertrend Indicators

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Why is the supertrend indicator a big deal in trading? It’s not just a line on a chart; it’s about reading the market and knowing when to enter or exit trades.

It provides visual cues that help traders spot trends and reversals.

There are a few indicators in my arsenal.

A lot of people either use too few or too many. I found that, in some ways, less is more. With that said, we need to use some indicators or we’re trading blind.

Don’t worry, there’s a specific process I use for success.

And I’ve shown it to over 30 of my millionaire students.

Discover my trading process right here.

The supertrend indicator can be applied to different markets, whether stocks, forex, or futures. It’s about understanding market behavior and aligning your trading strategies with real-time data.

It’s not an infallible tool, but when used wisely, it adds value to trading decisions.

Who Invented the Supertrend Indicator?

Olivier Seban is the name behind the supertrend indicator.

While not a magic wand, his creation has become an integral part of modern technical analysis. It’s the result of understanding market behavior, crunching the numbers, and finding a way to visualize trends.

Traders across the world have adopted this tool, incorporating it into various trading strategies. It’s not about mimicking others; it’s about understanding the concept and adapting it to suit your risk tolerance and trading style.

How Does the Supertrend Indicator Work?

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The supertrend indicator isn’t complex, but it’s no child’s play either. It works on price trends and volatility, giving buy and sell signals based on the Average True Range (ATR).

Understanding how this indicator works is crucial. It’s not just about following signals blindly; it’s about interpreting the market’s direction, adapting strategies, and making informed decisions.

Characteristics of Supertrend Indicators

What makes the supertrend indicator stand out? It’s about its simplicity, ease of use, and visual clarity.

When the price is above the supertrend line, it signals a buy, and vice versa for a sell signal. Simple, isn’t it?

However, simplicity doesn’t mean you throw caution to the wind. Using this tool requires understanding market conditions, analyzing trends, and applying risk management.

It’s not a solitary tool; it’s a part of your broader trading strategy.

How Reliable Is Supertrend?

The supertrend indicator is a valuable tool, but is it infallible? No tool or strategy is.

It’s about how you use it, combined with other indicators and understanding market nuances.

Its reliability depends on various factors like settings, timeframes, and market conditions. The real question is how you use it. Adapt it to your trading style, understand its limitations, and use it as a part of a well-rounded trading approach.

Supertrend Indicator Formula and Calculation

Understanding the supertrend indicator isn’t just about following lines on a chart; it’s about knowing what goes behind those lines.

The supertrend indicator calculation involves the Average True Range (ATR) and a multiplier. It’s a combination of data and math, transforming raw numbers into visual cues.

The formula takes into account the closing price, ATR value, and a multiplier to give you the supertrend value.

It’s not about memorizing the formula but understanding how it works, its implications, and how to adapt it to various market conditions.

How to Use the Supertrend Indicator?

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Using the supertrend indicator isn’t just about plugging in numbers; it’s about understanding its application in real trading scenarios.

It’s a tool, and like any tool, it requires proper handling.

It’s about identifying trends, planning entries and exits, and managing risk. It’s not about shortcuts; it’s about adapting the tool to your trading style, whether day trading, swing trading, or scalping.

Supertrend Trading Strategy for Buy and Sell Signals

Buy low, sell high? The supertrend indicator provides buy and sell signals, but it’s not that simplistic.

Sometimes these signals don’t tell the full story. That’s why it’s so important to trade during key hours of volatility.

In fact, there’s a perfect profit window coming up.

Pay attention during these times!

When the supertrend line turns green, it’s a buy signal, and red means sell. But there’s more to it.

Understanding the signals requires interpreting the market trends, support and resistance levels, and volume.

It’s not about jumping on every signal; it’s about discerning the right ones, aligning with your trading strategy, and always keeping risk management in focus.

Double Supertrend Trading Strategy

Ever heard of the double supertrend trading strategy? It’s about using two supertrend indicators with different parameters, providing additional confirmation and reducing false signals.

It’s not a holy grail, but a way to filter noise and make more informed trading decisions.

Adapt it to your trading, understand how it works with different assets, and remember, it’s one part of a broader trading approach.

Also, I recognize some patterns don’t make much sense to new traders. Everyone’s different. You must find a strategy that works for YOU as an INDIVIDUAL.

For another strategy example, watch my video below:

How to Avoid False Signals?

False signals are part of trading, and the supertrend indicator is no exception.

How to tackle them? It’s about using additional tools, understanding market behavior, and not relying solely on one indicator.

Combine the supertrend with other technical tools, analyze broader market trends, and remember, there’s no foolproof method. It’s about being vigilant, learning from experience, and constantly evolving your trading strategies.

Combining Supertrend with Other Indicators

The supertrend indicator is powerful, but it doesn’t have to work alone. Combining it with other indicators can enhance your trading strategy, providing more depth.

  • Use it with moving averages for trend confirmation
  • Pair it with RSI (Relative Strength Index) to gauge overbought or oversold conditions.
  • How about adding Bollinger Bands to understand volatility?

The crossover points, patterns, and price charts can provide more depth to your analysis.

Just remember, your capital is at stake, so test your combination well before executing any trades. No one tool or method will guarantee profits. It’s about finding what aligns with your performance goals and risk management.

Understanding the dynamics of various indicators is essential for a well-rounded trading strategy.

One such powerful tool is the MACD (Moving Average Convergence Divergence) Indicator. It’s widely used to spot changes in the strength, direction, momentum, and duration of a trend. By learning how to use the MACD Indicator, traders can gain deeper insights into market trends and make more informed decisions.

If you’re interested in enhancing your trading toolkit with this versatile indicator, you can explore this comprehensive guide on how to use the MACD Indicator.

A Trading Approach Utilizing Moving Average Crossover and Supertrend

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The supertrend indicator shines when combined with other tools, especially when focusing on entry and exit points.

One proven method is to unite supertrend with a moving average crossover.

Use supertrend to detect the trend, while the moving averages crossover confirms signals. It’s a combination that works, providing clear direction while minimizing noise.

It’s a strategy, not a guarantee, so always keep a close eye on risk management and practice it across various markets like stocks, forex, or futures.

What’s the Best Indicator to Use with the Supertrend Indicator?

What’s the best indicator to pair with supertrend? A tricky question, but here’s the thing: there isn’t a one-size-fits-all answer.

Some traders might swear by the relative strength index, while others favor MACD. What matters is finding what fits your trading style. Experiment, combine, and create a robust trading strategy that’s unique to you.

Understand that it’s not about what’s best, but what’s best for your trades in the financial market you’re operating in.

In the world of trading, the Aroon indicator is another valuable tool that helps in identifying trends and reversals. It’s particularly useful in determining the strength of a trend and the likelihood of its continuation.

Integrating the Aroon indicator with other tools like the supertrend can provide a more nuanced understanding of market behavior. If you’re looking to expand your knowledge and explore new ways to analyze trends, the Aroon indicator might be the perfect addition to your toolkit.

Learn more about this fascinating tool by reading this in-depth guide on the Aroon indicator.

Supertrend Indicator Settings and Parameters

Settings matter. The supertrend indicator’s default settings might not fit your specific market or trading style.

Experiment with the parameters. The values you set for the Average True Range (ATR) and multiplier can make a difference in your indicator value and how it reacts to price changes.

Whether you’re dealing with stocks, forex, or options, customize the settings to your needs.

Adjust the stop-loss levels to protect your capital. Get alerts when your chosen crossover point is reached. It’s all about making the supertrend work for your unique strategy.

The effectiveness of any indicator lies in its proper configuration. The MACD Indicator, for instance, requires careful tuning to align with your specific trading style and market conditions.

Finding the best MACD settings can significantly enhance your trading experience, providing more accurate signals and insights. Whether you’re into day trading, swing trading, or long-term investment, understanding the optimal settings for MACD can be a game-changer.

To discover the ideal configuration that suits your trading needs, check out this detailed guide on the best MACD settings.

What Are the Settings for the Supertrend Indicator?

The supertrend indicator is known for its versatility, and its settings play a huge part.

Multiplier and Average True Range (ATR) are the keys. Increase the multiplier to reduce sensitivity and vice versa. Test, observe, adjust.

Your trading platform, whether in stocks or forex, will allow you to play with these parameters. Find what works best for your chosen market, your assets, and, most importantly, your risk tolerance.

Best Supertrend Indicator Settings for Swing Trading

Swing trading with supertrend requires attention to settings.

There’s no magic number, but you might start with a 10-period ATR and a 3x multiplier.

Watch how the indicator behaves, see how it reacts to changes in the market and trends, and don’t be afraid to tailor it to your trading style. Remember, small gains add up, and getting the settings right can contribute to those gains.

Supertrend Indicator Settings for Intraday Trading

Intraday trading needs sharper tools, and that’s where the settings for the supertrend indicator come in.

A commonly used setup is a 7-period ATR with a 3x multiplier. It might suit the short-term movements you’re looking for.

But here’s the catch: it’s not set in stone. Play with the settings, analyze different assets and trends, and make it fit your trading system. The flexibility is there; use it wisely.

Supertrend Indicator for Different Trading Styles

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Day trading, swing trading, or something else? Your trading style influences how you’ll use the supertrend Indicator.

Day traders may prefer shorter settings, focusing on quick price changes.

Swing traders might look at broader trends, analyzing patterns over days or weeks.

Your choice of timeframe, stop-loss orders, and capital allocation can significantly affect the performance and profits you aim for. Consider these aspects and tailor the supertrend indicator strategy to fit your approach.

And always keep an eye on those charts, bars, and arrows pointing you in the right direction.

Day Trading with Supertrend Indicator

Day trading with the supertrend indicator? It’s a match.

By using settings tailored for shorter timeframes, you can capture intraday trends. Combine it with other technical tools to confirm signals, manage your risks, and, of course, cut losses quickly if things don’t go your way.

Whether it’s in stocks, forex, or futures, the supertrend can be a solid part of your day trading toolkit.

Scalping with Supertrend Indicator

For those into scalping, the supertrend indicator has something to offer too.

With the right settings and clear rules, it can help you detect short-term price changes.

But don’t let the excitement of quick trades overshadow sound decision-making. Utilize the support and resistance levels, keep an eye on the volatility, and always, always stick to your risk management principles.

Supertrend Indicator for Swing Trading

Swing traders, the supertrend indicator can be your ally.

The right settings, tailored for longer timeframes, can help you identify and follow the trends in various markets. Be it equities, commodities, or currencies, align the supertrend with your swing trading strategy.

And never forget: It’s not just about following a trend; it’s about understanding it, validating it with other indicators, and managing the risks involved.

Pros and Cons of Supertrend Indicator

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The supertrend indicator, like any other trading tool, has its strengths and weaknesses.

Understanding both sides of this tool is essential for implementing it into your trading strategy.

Here’s a breakdown of the advantages and disadvantages to help you decide if the supertrend indicator aligns with your trading goals and risk management.

Advantages of Supertrend Indicator

The supertrend indicator isn’t a silver bullet, but it has its strong points.

First off, it’s user-friendly, making it suitable for both beginners and seasoned traders.

It aids in identifying trends with its straightforward green and red lines, helps cut through market noise, and offers clear buy and sell signals.

Coupled with solid risk management, it can become a useful part of your trading strategy in various markets like stocks, futures, or forex.

Disadvantages of Supertrend Indicator

But let’s be transparent: the supertrend indicator has its drawbacks.

False signals can occur, especially in range-bound markets where price fluctuations can mislead the indicator.

It’s not a standalone tool; it needs other indicators to confirm its signals.

It can’t predict sudden market changes or volatility spikes, so it’s essential to use it in conjunction with other tools for comprehensive analysis.

Supertrend Indicator in Different Markets

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Different markets, different rules. How you apply the supertrend indicator will vary depending on whether you’re trading equities, futures, forex, or options.

The parameters, default settings, and stop-loss orders must be carefully adjusted to each market’s volatility, trends, and price levels.

Combine the supertrend with other indicators, charts, and patterns to refine your strategy across markets. But be warned: no single tool will write your success report. It’s the wise combination of tools, strategies, and risk management that paves the way to consistent performance.

How to Use the Supertrend Indicator in Crypto Trading

Crypto trading, with its wild price swings, calls for robust tools, and the supertrend indicator can be one.

It can help spot uptrends and downtrends, and with the right parameters, adapt to the crypto market’s volatility.

Combine it with other indicators like MACD or RSI for a well-rounded strategy. Still, caution’s the word here, as the crypto market is ever-changing. Always keep a close eye on your positions and risk.

How to Use the Supertrend Indicator in Stock Trading

In stock trading, the supertrend indicator has proven to be a versatile tool.

From detecting trends in individual stocks to entire sectors, its color-coded lines simplify decision-making.

Play around with the settings to match your trading strategy, whether it’s day trading, swing trading, or position trading.

And remember, combine it with other tools like moving averages or volume to get a fuller picture.

How to Use the Supertrend Indicator in Forex Trading

In the fast-paced world of forex, the supertrend indicator offers a helping hand.

It’s about finding trends amidst market noise and using the right settings to capture short-term or long-term moves. Paired with other technical indicators, it can become a part of a robust forex trading strategy.

As with any tool, practice, observe, and align it with your risk tolerance.

How to Use the Supertrend Indicator in Futures Trading

Futures traders, you haven’t been left out.

The supertrend indicator can be applied to your trading as well. Whether you’re dealing with commodities or financial futures, its ability to highlight trends can be valuable.

Customize the settings to suit the particular market, but always keep in mind: futures trading comes with its unique set of risks. Manage them well, and the supertrend indicator can be a valuable asset.

Key Takeaways

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Supertrend indicator is a versatile tool, applicable across markets.

Its settings are adjustable, but they need to be tailored to your specific trading style and market conditions.

Combine it with other technical tools to validate signals, and never disregard proper risk management.

It’s not infallible, so be aware of its limitations, especially in range-bound markets.

Trading isn’t rocket science. It’s a skill you build and work on like any other. Trading has changed my life, and I think this way of life should be open to more people…

I’ve built my Trading Challenge to pass on the things I had to learn for myself. It’s the kind of community that I wish I had when I was starting out.

We don’t accept everyone. If you’re up for the challenge — I want to hear from you.

Apply to the Trading Challenge here.

Trading is a battlefield. The more knowledge you have, the better prepared you’ll be.

Have you used the supertrend indicator before? Let me know in the comments — I love hearing from my readers!

Frequently Asked Questions

What Time Frame Is Best for the Supertrend Indicator?

Timeframes? It depends on your trading style.

For day trading, shorter timeframes might work best. For swing or position trading, longer ones.

The essential part is to experiment and find what aligns with your strategies and the specific market you’re in, be it stocks, forex, or futures.

What Does Supertrend 7 3 Mean?

The numbers 7 and 3 in supertrend refer to the ATR period and the multiplier.

In this case, a 7-period Average True Range and a multiplier of 3. It’s a common setting for intraday trading, but remember, settings can and should be customized to suit your specific needs.

What Are the Various Supertrend Strategies?

Supertrend strategies vary from simple trend following to complex combinations with other indicators like moving averages or MACD.

Whether it’s for day trading, swing trading, or position trading, the supertrend can be tailored to suit various strategies across different markets.

Experiment, learn, and find what works best for you.

How Does the Supertrend Indicator Work, and Can You Provide an Example? What Role Does Stop Loss Play in This Method, and How Are Prices Affected?

The supertrend indicator is a trading tool used to determine the direction of a security’s momentum.

It’s often utilized with a stop-loss strategy to minimize potential losses. Prices are calculated using specific formulas, and an example of how this indicator works can be found in many trading articles.

This method helps investors make informed decisions based on the trends identified by the indicator.

Pay attention to the color of the lines, green signifies a potential buy, and red is a potential sell.

What Services Are Available for Understanding the Supertrend Indicator, and Where Can I Find an Article That Concludes the Information About This Method? How Does It Impact Money Management for Investors?

Several services provide comprehensive insights into the supertrend indicator, including online platforms that offer tutorials, webinars, and articles.

You can find a well-researched article that provides a detailed conclusion on how the supertrend indicator works.

This trading tool is valuable for investors as it helps in efficient money management by identifying price trends and allowing for the strategic placement of stop-loss orders.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”