SuperTrend – A trend-following indicator to use in your trading strategies
Find out what is SuperTrend and how to apply the technical indicator onto your trading.
SuperTrend is a technical indicator that allows you to identify trends and provides you with both buy and sell signals. It may be applied across different timeframes (i.e. 5 minutes, hourly, daily), although you may note that a smaller timeframe may lead to a higher frequency of signals being generated. It usually alternates between two colours: green or red, indicating whether the trend is tilted to the upside or downside respectively. A buy signal is generated when the SuperTrend is plotted below the closing price and the colour switches from red to green. Conversely, a sell signal is generated when the SuperTrend is plotted above the closing price and the colour switches from green to red.
For example, if you want to take up a long position in Alphabet, the SuperTrend has signalled an entry point to long the stock in April last year, when the line switches from red to green. It then signalled an exit in September, when some weakness in Alphabet’s share price was observed. Thereafter, it provided another entry point to long the stock in October last year and has not signalled any exit thus far.
The parameters for the indicator consist of a time period and multiplier. The default setting for IG platform is a period of 14 and multiplier of 3. Generally, the indicator takes market volatility into consideration when calculating its value and hence, the time period is mainly used for its average true range (ATR) calculation. Changing to a shorter period may then produce more trading signals. On the other hand, multiplying the ATR and the multiplier factor, may determine how sensitive the indicator is. Likewise, a lower multiplier factor may lead to more trading signals.
The advantages of the SuperTrend are that it is easy to use and provides buy and sell signals for traders. It can also be applied across multiple timeframes and different asset classes to identify trends. An important point to note, however, is that the indicator performs best in a trending market and may not work as well for sideways markets, which have a higher tendency to produce false signals.
How to add SuperTrend in IG platform
To add the SuperTrend onto your charts, you can do a simple right-click and head over to the option called ‘Indicators’. Under the list of technical indicators shown, you will be able to find ‘SuperTrend’ and selecting it will automatically incorporate the indicator onto your selected chart.
Disclaimer: Our indicators do not constitute and shouldn't be regarded as investment advice. IG provides an execution only service. You act on indicators entirely at your own risk.
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