The Supertrend Filter is a technical indicator developed by Olivier Seban that allows you to determine the trend direction in the market and the entry/exit points of trades based on the closing price and volatility. It is suitable for analyzing any time interval and trading instruments. The calculation of the indicator’s main line combines trend detection and volatility measurement.
How does the indicator work?
Supertrend calculates values by combining two indicators:
CCI is an indicator that measures the deviation of the current price of an asset from its average value over a given period of time. It helps to determine the strength and direction of the trend.
ATR is an indicator that reflects the level of volatility of a financial instrument in real time. It is used for quantitative evaluation of price movements.
Combining these two indicators allows Super-trend to effectively track the trend in the market, taking into account their strength (by CCI) and the level of price volatility (by ATR). This enables the indicator to timely signal trend reversals and potential entry/exit points.
The indicator is represented as a line on the chart, which changes its position depending on the trend direction and market volatility.
How to use it in trading?
Supertrend can be used both to detect a trend change and to place protective stop orders, minimizing risks. Flexible settings of moving averages periods and ATR multiplier make it possible to optimize the indicator’s work for a specific trading strategy.
Supertrend indicator signals:
1. Crossing of the price and the Supertrend line:
When price crosses the Supertrend line from bottom to top, it signals a possible reversal of the downtrend and the formation of an uptrend. This is a signal to open long positions.
When the price crosses the Supertrend line from top to bottom, it indicates a potential reversal of the uptrend and the formation of a downtrend. This is a signal to open short positions.
2. Color of the Supertrend line (see in the Preview):
The green color of the line indicates the presence of an uptrend
The red color of the line signals a downtrend. 3.
3. Direction of the line slope:
Upward slope – rising trend
Downward slope – falling trend
4. changing the slope of the line:
If the line changes direction from an uptrend to a downtrend, it may warn of a downward trend reversal.
If the line changes direction from downward to upward, it is a potential signal of an upward trend reversal.
