Supertrend
Indicator Type: Overlay
Chart Type: Interactive Chart only
Supertrend indicator was created by Olivier Seban to work on different time frames. It works for futures, forex, and equities. It is used in 15 minutes, hourly, weekly, and daily charts. Based on the parameters of multiplier and period, the indicator uses 3 for multiplier and 7 for ATR as default values. Average True Range is represented by the number of days while the multiplier is the value by which the range is multiplied.
The basic motive of the indicator is to give buy sell signal to the traders. It shows the change in trends by turning its flips. When the price of the stock goes high than the indicator value, the indicator gives the signal by turning the color to green. Vice versa, when the price goes down than the indicator value, a sell signal occurs. It is shown as the color changes to red. The indicator quickly captures the short intraday trends. However, the default values of 7 and 3 are good while you use it. In an attempt to reduce the parameter, you might end up generating wrong signals.

As per many experts, supertrend indicator is best to use in combination with other indicators like MACD and RSI. However, let us see what are its own advantages and disadvantages.
The best thing about supertrend it sends out accurate signals on precise time. The indicator is available on various trading platforms free of cost. The indicator offers quickest technical analysis to enable the intraday traders to make faster decisions. As said above, it is extremely simple to use and understand.
However, the indicator is not appropriate for all the situations. It works when the market is trending. Hence it is best to use for short-term technical analysis. Supertrend uses only the two parameters of ATR and multiplier which are not sufficient under certain conditions to predict the accurate direction of the market.
Understanding and identifying buying and selling signals in supertrend is the main crux for the intraday traders. Both the downtrends as well uptrends are represented by the tool. The flipping of the indicator over the closing price indicates signal. A buy signal is indicated in green color whereas sell signal is given as the indicator turns red. A sell signal occurs when it closes above the price.
Calculation
Up = (high + low / 2 + multiplier x ATR
Down = (high + low) / 2 – multiplier x ATR
Calculation of Average True Range
[(Prior ATR x 6) + Current TR] / 7
Here, 7 indicates a period. Hence, the ATR is derived by multiplying the previous ATR with 6. Add the latest TR and divide it by period. Thus, ATR plays an important role in the supertrend technical analysis indicator.
Parameters
- Period (7) - the number of bars, or interval, used to calculate the ATR
- Multiplier (3) - the multiplier used in the calculation