Supertrend Indicator – What It Is & How to Trade with It

Supertrend Indicator – What It Is & How to Trade with It

What is the Supertrend Indicator?

The Supertrend Indicator is a trend-following tool that helps traders identify bullish and bearish trends based on price movement and volatility. It is plotted as a line above or below price and changes color when the trend direction shifts.

The Supertrend is calculated using the Average True Range (ATR) to dynamically adjust to market volatility:
Supertrend = Median Price ± (Multiplier × ATR)

Where:

• Median Price = (High + Low) / 2
• ATR = Average True Range over a selected period (commonly 10 or 14).
• Multiplier = A user-defined factor (typically 2 or 3) to adjust sensitivity.

Key Features of the Supertrend Indicator

• Clearly defines trend direction with simple visual cues.
• Adapts to market volatility using ATR.
• Provides clear buy and sell signals.

How to Use the Supertrend Indicator in Forex Trading

1. Trend Identification Strategy

• Bullish Trend: When the Supertrend line is below the price and green.
• Bearish Trend: When the Supertrend line is above the price and red.

Recommended Supertrend Settings:

• Multiplier: 2 or 3 (higher values reduce false signals).
• ATR Period: 10 or 14 for reliable trend confirmation.

2. Supertrend Crossover Strategy

Traders use Supertrend color changes to identify trade entries:

• Buy Signal: When the Supertrend flips from red (above price) to green (below price).
• Sell Signal: When the Supertrend flips from green (below price) to red (above price).

Trading Tip: Confirm Supertrend signals with a moving average or MACD for stronger trade setups.

3. Supertrend with RSI Strategy

Pairing the Supertrend with Relative Strength Index (RSI) improves trade accuracy:

• Buy when: Supertrend is green & RSI is below 30 (oversold).
• Sell when: Supertrend is red & RSI is above 70 (overbought).

Pros and Cons of Using the Supertrend Indicator

✅ Pros:

• Easy to use and interpret.
• Works well in trending markets.
• Dynamically adjusts to market volatility.

❌ Cons:

• Can produce false signals in choppy markets.
• Not as effective in ranging conditions without additional confirmation.

Final Thoughts

The Supertrend Indicator is a powerful trend-following tool that provides clear buy and sell signals while adapting to market volatility. It’s an excellent addition to any forex trading strategy, especially when combined with other indicators.