Super Trend Indicator: Meaning, Working & Formula | Espresso

What is Super Trend Indicator?

Today, one of the most common issues faced by intraday traders is determining which indicators function properly for their intraday trades. If you’re an intraday trader, you most likely leverage technical analysis to locate trades depending on various parameters.

Published on 03 March 2023

Nevertheless, when we speak of intraday trading, the first indicator that pops into our minds is the Super trend indicator. Perhaps it is due to the indicator's simplicity or the accuracy of the buy or sell signals it provides. Let’s read this article to find out "what is Super trend indicator” is, how it works, and more.

Super trend Indicator: What Does It Mean?

The Super trend indicator is a trend-following indicator that works just like moving averages. This indicator is typically represented by the price, and you can determine the latest trend by its positioning on the price. This basic indicator is designed by using only two parameters – multiplier and period. 

The default parameters when you design the Super trend indicator plan are 3 for the multiplier and 10 for ATR (Average True Range). The ATR plays a crucial role here, as the Super trend indicator leverages the ATR for computing its value. It helps signal the degree or extent of price volatility.

Super trend Indicator: How Does It Work?

A super trend indicator is one of the most commonly used indicators for setting your selling and buying points at the most accurate levels. However, the question still remains: how does it work to accomplish something like that?

You should know that two lines – a green line and a red line – compose the Super trend indicator. These lines enable you to evaluate the following:

  • The trend direction,
  • Whether to buy or sell and, in either case, when to do so.

To plot and indicate the lines, the super trend indicator leverages the ATR along with the multiplicator. This enables you to set or position market entries based on volatility and momentum.

And when it comes to what chart is best for the Super trend indicator to function, you can independently utilize it on almost every timeline you consider a trend to be developing. A super trend is a lagging indicator, implying that any well-built trend will boost the indicator’s performance.

Super trend Indicator: Parameters to Know About

As you have read earlier, 10 and 3 are the two default parameters. You must remember that any modifications to these numerical values will influence the utilization of the Super trend indicator. No trading indicator comes with the best setting.

If you change more and more settings, the trading system may become over-optimized for that specific period. Keep a note of the following pointers:

  • The market noise will be removed with higher settings when there’s a risk of fewer trading signals.
  • The indicator will become more reactive/responsive to the price with smaller settings, resulting in more signals.

Super trend Indicator Formula

Here is the Super trend indicator formula that helps you calculate this indicator:

  • Down = [(High + Low / 2) – Multiplier] x ATR
  • Up = [(High + Low / 2) + Multiplier] x ATR

To calculate the ATR, follow this formula:

  • [(Previous ATR x 13) + Existing TR]/14

14 resembles a period in this equation. Thus, the ATR is determined by multiplying 13 by the past ATR. Then, add the result to the latest TR and divide it by the period. So, it’s clear that when it comes to the Super trend indicator, ATR plays a major role in it.

Super trend Indicator: How to Use It for Identifying Buy & Sell Signals

The super trend is an excellent trending indicator that functions exceptionally in both downtrends and uptrends. You can easily identify and locate the buy-sell signal whenever the indicator flips or rotates over the closing price.

When the super trend closes below the price point and the color changes to green, the buy signal is generated. Meanwhile, a sell signal is generated when the color changes to red and the Super trend closes above the price point.

Final Words

The Super trend indicator is undoubtedly one of the simplest and best solutions to scan the markets for buying and selling opportunities. With minimal to no tweaking, this indicator yields excellent results, provided it’s on its default settings.

Like any other trend-signal indicator, the Super trend indicator will give the best outcomes, provided you use it with a combination of other indicators.

Chandresh Khona
Team Espresso

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