{"id":3079,"date":"2021-07-07T17:59:05","date_gmt":"2021-07-07T12:29:05","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=3079"},"modified":"2022-12-06T18:42:15","modified_gmt":"2022-12-06T13:12:15","slug":"supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/","title":{"rendered":"Supertrend Indicator &#8211; Formula and How To Use It To Identify Buy and Sell Signals"},"content":{"rendered":"\n<p>As an intra-day trader, it is important to monitor and understand the patterns of market trends in order to create a trading strategy. There are various indicators that traders and investors can use to find out the possible direction of price movement in the market. Of all the indicators for quick <a href=\"https:\/\/www.tickertape.in\/blog\/technical-analysis-of-stocks\/\">technical analysis<\/a>, the Supertrend indicator is considered to be one of the simplest and easiest to rely on for buy or sell signals.<\/p>\n\n\n\n<p>In this article, let\u2019s discuss the Supertrend indicator, its uses, parameters, formula, and more.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#What-is-the-Supertrend-indicator\" title=\"What is the Supertrend indicator?\">What is the Supertrend indicator?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#How-to-use-the-Supertrend-indicator\" title=\"How to use the Supertrend indicator?\">How to use the Supertrend indicator?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#What-are-the-parameters-for-the-Supertrend-indicator\" title=\"What are the parameters for the Supertrend indicator?\">What are the parameters for the Supertrend indicator?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#Supertrend-indicator-formula\" title=\"Supertrend indicator formula\">Supertrend indicator formula<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#Calculation-of-Average-True-Range\" title=\"Calculation of Average True Range\">Calculation of Average True Range<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#How-to-identify-buy-and-sell-signals-using-the-Supertrend-indicator\" title=\"How to identify buy and sell signals using the Supertrend indicator?\">How to identify buy and sell signals using the Supertrend indicator?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#Trading-strategy-using-Supertrend-and-moving-average-crossover\" title=\"Trading strategy using Supertrend and moving average crossover\">Trading strategy using Supertrend and moving average crossover<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#Best-timeframe-to-use-in-Supertrend-indicator\" title=\"Best timeframe to use in Supertrend indicator\">Best timeframe to use in Supertrend indicator<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#Pros-and-cons-of-Supertrend-indicator\" title=\"Pros and cons of Supertrend indicator\">Pros and cons of Supertrend indicator<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#On-a-closing-note\" title=\"On a closing note\">On a closing note<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#FAQs\" title=\"FAQs\">FAQs<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#How-accurate-is-the-Supertrend-strategy\" title=\"How accurate is the Supertrend strategy?\">How accurate is the Supertrend strategy?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#Who-invented-the-Supertrend-indicator\" title=\"Who invented the Supertrend indicator?\">Who invented the Supertrend indicator?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.tickertape.in\/blog\/supertrend-indicator-formula-and-how-to-use-it-to-identify-buy-and-sell-signals\/#What-timeframe-and-setting-are-best-for-a-Supertrend-indicator-for-day-trading\" title=\"What timeframe and setting are best for a Supertrend indicator for day trading?\">What timeframe and setting are best for a Supertrend indicator for day trading?<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What-is-the-Supertrend-indicator\"><\/span><strong>What is the Supertrend indicator?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>It is a trend-following indicator. The Supertrend indicator was created by Olivier Seban to work on different time frames. It works for futures, forex and equities. You can run it every 15 minutes, hourly, weekly, or daily.<\/p>\n\n\n\n<p>Supertrend indicator is plotted in stock price charts for investors and highlights prominently visible trends that are shown in red when prices have dipped and green when prices have risen.&nbsp;<\/p>\n\n\n\n<p>This indicator works on only two parameters:&nbsp;<\/p>\n\n\n\n<ol><li><strong>Periods:<\/strong> Traders usually use 10 periods \u2013 <a href=\"https:\/\/www.tickertape.in\/blog\/average-true-range\/\">Average True Range<\/a> number of days (ATR \u2013 yet another indicator that gives you <a href=\"https:\/\/www.tickertape.in\/blog\/strategies-to-tackle-volatility\/\">market volatility<\/a> value by decompressing the range of prices of a security for a particular time).<\/li><li><strong>Multiplier:<\/strong> A multiplier is a value by which ATR would be multiplied. Three multipliers are used.<\/li><\/ol>\n\n\n\n<p>ATR plays a crucial role in this indicator since it is used to compute a value, and based on that, the degree of price <a href=\"https:\/\/www.tickertape.in\/blog\/volatility\/\">volatility<\/a> can be tracked. If all of these are too complex, you don\u2019t have to worry; systems and screeners are now equipped to do the math for you in seconds \u2013 simply select the options on your computer and set up your trade strategy!<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How-to-use-the-Supertrend-indicator\"><\/span><strong>How to use the Supertrend indicator?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here is the step-by-step guide on the method to use this indicator:<\/p>\n\n\n\n<ol><li>Open the chart of the stock you want to trade.&nbsp;<\/li><li>Fix the time interval of 10 minutes if you want to go for intra-day trading.<\/li><li>Select Supertrend as your indicator.<\/li><li>You can set the parameter values to the default values, which are 10 and 3. You can set values as per your requirement as well. For instance, if you reduce the value to 5 and 1.5, the buy and sell signals will also increase.&nbsp;<\/li><li>Start observing when the signals are in your favour.<\/li><li>You can also observe the arrows to rely on for the signal to buy or sell.<\/li><\/ol>\n\n\n\n<p>It is highly recommended to have your <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-stop-loss\/\">stop loss<\/a> in place. While aiming for long positions, you can put your stop loss at the green light indicator, and similarly, for short positions, you can put your stop loss at the red light indicator.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What-are-the-parameters-for-the-Supertrend-indicator\"><\/span><strong>What are the parameters for the Supertrend indicator?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There is no fixed setting for any trade indicator. The most popular values for the parameters for the Supertrend indicator are 10 and 3. Any changes in this value can affect the use of the Supertrend indicator. Also, the more settings you revise, it can lead to a trading system that is over-optimized for that point in time.\u00a0<\/p>\n\n\n\n<p><strong>Noteworthy points:<\/strong><\/p>\n\n\n\n<ol><li>Smaller settings shall make the indicator more reactive to the price, which could mean more signals.<\/li><li>Higher settings shall remove noise from the market at the risk of less trading signals.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Supertrend-indicator-formula\"><\/span><strong>Supertrend indicator formula<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The formula for the Supertrend indicator is as below:<br><\/p>\n\n\n\n<p>Up = (high + low)\/2 + multiplier X ATR<br>Down = (high + low)\/2- multiplier X ATR<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Calculation-of-Average-True-Range\"><\/span><strong>Calculation of Average True Range<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>[(Previous ATR) X 13 + Current ATR]\/14<\/p>\n\n\n\n<p>Here, 14 indicates a period. Therefore, ATR is derived by multiplying the previous ATR with the period less than one number. Add the latest TR and divide by the period.<br><\/p>\n\n\n\n<p>Hence, ATR plays a crucial role in the construction of this indicator.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How-to-identify-buy-and-sell-signals-using-the-Supertrend-indicator\"><\/span><strong>How to identify buy and sell signals using the Supertrend indicator?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Irrespective of whether the market is trending upward or downward, this indicator works equally well. When the trend closes below the price and the colour changes to green, a buy signal is generated. The opposite is when the trend closes above the price and the colour changes to red, generating a sell signal.&nbsp;<\/p>\n\n\n\n<p>No indicators elicit 100% accuracy, and it is the same with the Supertrend indicator. It may also happen that false signals are generated, though the chances of that happening are meagre. That said, it always helps to use this indicator in combination with other indicators to get better trading signals. You can filter out the stocks and trade accordingly with the help of this signal.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Trading-strategy-using-Supertrend-and-moving-average-crossover\"><\/span><strong>Trading strategy using Supertrend and moving average crossover<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The moment when the Supertrend turns green (meaning the Supertrend is below the price) and 5 EMA (<a href=\"https:\/\/www.tickertape.in\/blog\/exponential-moving-average\/\">Exponential Moving Average<\/a>) is above 20 EMA, a buy signal is generated. Similarly, a sell signal is generated when the trend turns red (meaning the Supertrend is above the price), and 20 EMA is below 5 EMA, a sell signal is generated.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Best-timeframe-to-use-in-Supertrend-indicator\"><\/span><strong>Best timeframe to use in Supertrend indicator<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Longer timeframes are generally used by swing traders and position holders because it helps to identify absolute trade signals after confirmation of trends, tiding over short-term volatility. The lowest time frame you can use is the 15-minute chart. You can also use this indicator on multiple timeframes where you can place it on a longer time frame and then go down to a shorter time frame and use it for entry and exit signals.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pros-and-cons-of-Supertrend-indicator\"><\/span><strong>Pros and cons of Supertrend indicator<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>This indicator is available free of cost on almost all trading platforms. The Supertrend gives the most accurate signals on precisely timing the trades. With the help of the indicator, you, as an intraday trader, can make faster decisions. On the other side, the indicator works best only when the market is trending and not in all market phases.<\/p>\n\n\n\n<p>Such a trend indicator needs to work with other indicators like RSI and Parabolic SAR to receive filtered signals. Also, only two parameters are used to arrive at any conclusion, which may not be sufficient under certain market conditions. Apart from being not accurate for all situations, it also shows different results for different stocks.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"On-a-closing-note\"><\/span><strong>On a closing note<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Intraday traders can use this Supertrend indicator to make their decisions quickly since it can provide the analysis for a particular stock within a few seconds. This indicator is similar to moving averages but can be used on multiple timeframes to generate entry and exit signals. Combining the results generated by the Supertrend indicator and other such indicators shall increase the chances for the most accurate results.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span><strong>FAQs<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-question-1670332217608\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"How-accurate-is-the-Supertrend-strategy\"><\/span><strong>How accurate is the Supertrend strategy?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Like all technical indicators, Supertrend cannot be 100% accurate. It can generate false signals in the sideways market.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1670332226509\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"Who-invented-the-Supertrend-indicator\"><\/span><strong>Who invented the Supertrend indicator?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Olivier Seban is the inventor of the Supertrend indicator. It is created to help traders correctly identify buy and sell signals and the degree of price volatility.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1670332244993\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"What-timeframe-and-setting-are-best-for-a-Supertrend-indicator-for-day-trading\"><\/span>What timeframe and setting are best for a Supertrend indicator for day trading?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>The most popular values for the parameters for the Supertrend indicator are 10 and 3. Any changes in this value can affect the use of the Supertrend indicator.\u00a0<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>A Supertrend indicator helps you identify a trending market&#8217;s buying and selling signals. Know more about how and when to use the Supertrend indicator with formula and strategy.<\/p>\n","protected":false},"author":90,"featured_media":3089,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[1742],"tags":[],"acf":[],"modified_by":"Anjali Chourasiya","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/07\/Informative-1.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3079"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/90"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=3079"}],"version-history":[{"count":6,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3079\/revisions"}],"predecessor-version":[{"id":11311,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3079\/revisions\/11311"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/3089"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=3079"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=3079"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=3079"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}