The Basics of supertrend indicator
Supertrend indicator generate buy and sell signal’s based on changes in the trend
Indicator Type :-Trend Following indicator
Market’s:-Cash & Future, (supertrend very famous for forex market), Not for option market
Work Best:-Trending market
The upper band is the average price plus the volatility-based multiplier (usually average true range (ATR)). The lower band is the average price minus the volatility-based multiplier. Only one band show in this indicator like parabolic SAR indicator.
Similar to any trailing stop, the upper band can never move higher once established and the lower band can never move lower once established.the close of the bar when direction changes.
Defaults period used for the ATR calculation is 7. The multiplier is set at 3.defaults to these parameters.
You can also select colors upper and lower lines by selecting the appropriate box to bring up a color palette.
The Supertrend indicator show trend direction’s clearly but super trend indicator does not give you trend strength in the market. It gives buy or sell signals when price crosses the indicator band’s like moving average indicator. Prices break out an upper band in upper side this is good buy signal and Prices break out the lower band in lower side this is good sell signal like parabolic SAR.
So this indicator better working in trending market condition’s not for choppy markets.
Buy when the current period closes above the upper line. Sell when the current period closes below the lower line.
Keep in mind that intraday, there would have been a tentative signal but again it is the close that matters.
Upper band = ((high + low / 2) + Multiplier * ATR = Only if price < upper
Lower band = ((high + low / 2) – Multiplier * ATR =Only if price > lower
ATR (Average True Range)
TR (True Range) is defined as the greatest of the following:
Current high price minus the current low price
Current high price minus the previous close price (absolute value)
Current low price minus the previous close price (absolute value)
ATR = simple moving average of TR
(check supertrend indicator click on chart)
For better understand supertrend indicator click this button and watch youtube video.