Supertrend Indicator: How to Use It for Trend Following and Trade Entries
Supertrend Indicator: How to Use It for Trend Following and Trade Entries
The Supertrend Indicator is a trend-following tool that helps traders identify the prevailing market trend and generate precise entry and exit points. It is widely used in forex, stocks, and crypto trading because of its simplicity and accuracy.
In this guide, we’ll break down how the Supertrend Indicator works, how to use it effectively, and the best Supertrend trading strategies.
What Is the Supertrend Indicator?
The Supertrend Indicator is based on ATR (Average True Range), which adjusts the indicator’s sensitivity to market volatility.
- If price is above the Supertrend line → Bullish trend (buy signal).
- If price is below the Supertrend line → Bearish trend (sell signal).
The Supertrend automatically adjusts based on volatility, making it effective for trend identification and trade confirmation.
How to Calculate the Supertrend Indicator
The Supertrend formula is:
[
\text{Upper Band} = (\text{High} + \text{Low}) / 2 + (ATR \times Multiplier)
]
[
\text{Lower Band} = (\text{High} + \text{Low}) / 2 – (ATR \times Multiplier)
]
Where:
- ATR (Average True Range) measures market volatility.
- Multiplier (commonly set to 3) adjusts sensitivity.
The Supertrend switches direction when price crosses the calculated bands.
How to Use the Supertrend Indicator in Trading
Identifying Trend Direction
- Buy when price is above the Supertrend line (green signal).
- Sell when price is below the Supertrend line (red signal).
Supertrend Crossover Strategy
- When the Supertrend flips from red to green, it signals a buy opportunity.
- When the Supertrend flips from green to red, it signals a sell opportunity.
Supertrend + ATR Volatility Strategy
- If the ATR increases, expect stronger Supertrend signals.
- If the ATR is low, price may move sideways, and signals may be weaker.
Best Supertrend Trading Strategies
Supertrend + Moving Average Strategy
- Buy when Supertrend turns green and price is above the 50-day SMA.
- Sell when Supertrend turns red and price is below the 50-day SMA.
Supertrend + RSI Strategy
- Buy when Supertrend is bullish and RSI is below 30 (oversold).
- Sell when Supertrend is bearish and RSI is above 70 (overbought).
Supertrend + MACD Strategy
- Use MACD crossovers to confirm Supertrend signals.
- If price is above Supertrend and MACD is bullish → Strong buy signal.
- If price is below Supertrend and MACD is bearish → Strong sell signal.
Best Supertrend Settings for Different Trading Styles
- Day Trading: ATR (7) Multiplier (2) for quicker trend detection.
- Swing Trading: ATR (10) Multiplier (3) (default setting).
- Long-Term Investing: ATR (14) Multiplier (4) for more reliable trends.
Common Supertrend Mistakes to Avoid
❌ Trading every signal blindly – Always confirm with RSI, MACD, or volume analysis.
❌ Ignoring volatility spikes – ATR spikes can lead to false Supertrend signals.
❌ Overtrading in sideways markets – Supertrend works best in strong trending markets.
Final Thoughts – Should You Use the Supertrend Indicator?
The Supertrend Indicator is a powerful trend-following tool that helps traders identify trade entries and exits with high accuracy. When combined with moving averages, RSI, or MACD, it improves trade confirmation and reduces false signals.
📌 Want to Trade With the Supertrend Indicator?
Try applying Supertrend settings on different assets and test its effectiveness in trending vs. ranging markets!
