Supertrend indicator is a market trend signal line of a either bearish or bullish market. Most traders will advise you to follow the trend when looking for profitable opportunities during day trading. To do so, you need one thing. The supertrend indicator. Traders who rely on the super trend indicator can easily tell when the marketing is undergoing or almost undergoing a trend reversal.
As such, the indicator plays a significant role in helping short-term traders lock in plenty of profits earlier when a trend has just emerged. This article dissects the supertrend indicator, how reliable it is and the best times to profit from its effectiveness.
If you are not familiar with trading, indicators are a set of tools that forecast how the market will perform based on current fundamentals, past price action, and market volumes. Traders implement various trading tools in their day-to-day activities.
In the meantime, let’s continue exploring the ins and outs of the Supertrend indicator.
What is a Supertrend Indicator
Supertrend indicators are analysis tools in the crypto market that provide traders with the direction of market trends. Cryptocurrency markets are naturally volatile, as such, traders might find it difficult to predict price action. Where they can forecast a move, the price could rapidly move in an opposite direction before reversing. The supertrend indicator serves as a reliable tool for traders when predicting the exact moments when the price will rise or fall as elaborated in the picture below.
A good example of the super trend indicator in action is when an asset’s price, let’s say the trend is downwards, the indicator can predict when it will reverse in the opposite direction. As such, the supertrend indicator becomes a useful tool when forecasting a price retracement. Therefore, the super trend indicator helps everyday stocks and cryptocurrency traders determine an incoming price rise or fall.
The formula behind the supertrend indicator takes into account at least 10 different tools through a 10-period range. The final signal you get can help predict the direction of the next candlestick when the trend is retracing.
On a trading chart, a super trend indicator appears as red or green lines. Each color indicates a certain direction that will take place in the price action. A red supertrend indicator implies bearishness while a green indicator implies bullishness. Usually, a supertrend indicator uses an average true range (ATR) and multiplicator.
Supertrend indicator gives a clear view of the market direction to traders. When the value at which a stock is trading goes high above the indicator value, a green line occurs; hence indicating a buy signal. When the value of the stock trades below the indicator value, the indicator shows a red/sell signal.
How to Use Supertrend Indicator?
Traders use supertrend indicators to identify the direction of the market. This means to understand the trends of the market as a trader you really need to be more aware of the use of supertrend indicators. Supertrend indicator is used and applied in various aspects in cryptocurrency. Supertrend indicator is also used to manage risk.
Supertrend indicator is used by crypto whales, traders to determine the direction of a market. Determining directions of the market helps traders know when to enter or leave the market.
Time when a trader joins the market is when the market price is above the supertrend indicator. At this moment the market is said to be bearish. Similarly, the time when a trader exits the market is when market price is below the supertrend indicator. Therefore, by understanding changes experienced in a supertrend indicator, one can easily determine the directions of the market and trade accordingly.
Supertrend is used to manage risk in cryptocurrency exchanges and trades. Green and red indicators in a supertrend line help to navigate a bearish and blush market. Therefore one will not join the market blindly thus avoiding unnecessary losses. even if he/she joins the market can know where to put a stop loss and mange the risk of loosing money.
A trader may experience losses if they join the market when it is bullish but on its verge to go bearish. The vise versa is true. Traders who join the market early when more people are buying they always make profits. Similarly to perpetual traders who trade against the market trend makes profit since most traders exit the market. Use of supertrend indicators helps control such scenarios.
Supertrend indicator is used to help manage and control risks. Green and red signals implement bearish and bullish markets. By identifying the signals one can know when to enter and leave the market thus controlling chances of losing money.
A tweet by TrendSpinder states that With the super trend indicator as a base, it’s easy to develop both long and short-biased trading strategies on any ticker or timeframe.
How to Calculate Supertrend Indicator
Understanding the supertrend indicator formula is of great advantage when other indicators are on board. Calculating a super trend indicator helps get the directions of an asset price and its volatility.
Arriving at the super trend indicator follows the basic formula below:
Uptrend=(high+low)/2+multiplier x ATR
Downtrend=(high+low)/2+multiplier × ATR
With this formula, it is easy to predict an uptrend or downtrend on both long and short trades. However, the average true range (ATR) can be achieved by substituting the formula above.
High and low, multiplier, and ATR are some of the terminologies for calculating supertrends and one needs to understand all of them.
Average true range (ATR) is a measure of the volatility of a price range where the lowest and highest price ranges are determinants when calculating ATR. The closing price of a given time frame of an asset is also a considerate factor when calculating ATR.
Multiplier helps traders and investors to have a constant determinant indicator of price movement in more or less value. Whole numbers such as 1.5, 2, or 3 are used to multiply the ATR to place a stop loss to take profit below or above the entry price.
High and low values are high or low price values of a specified asset.
Merits of Supertrend Indicator
Helps identify Transitions for Buying and Selling signals
Supertrend indicators are like wall clocks. By watching their trend in a candlestick, it is easy to identify the signal line for buying or selling points. When the supertrend indicator turns from red to green at crossover, one can buy the assets because the market is bearish.
You may ask what a bearish and bullish market is:
A bullish market is a swing that shows the market is productive. Traders are closing profit. In other words, most of the traders are buying stocks and liquidating sellers. Therefore a candlestick rises. When the supertrend indicator is green below the closing price, it shows the market is bullish. This indicates an entry point.
When the market is bullish, it means it’s productive. Any trader investing his money means it will be productive. However, one should be very careful of the Supertrend Signal line as it goes to bearish markets.
A bearish market is where everyone is selling, very few are buying. In simpler terms, most of the traders are selling stock so the market trend is ending in losses. With less knowledge of supertrend indicators or other indicators, you may incur losses. Learning and mastering the indicator positions, you need to be in a position where you can easily determine when the market is either going to the red; or to the green.
This means, if a market is bearish, possible losses might be experienced if the trend keeps progressing. Therefore, a trader may decide to put a stop loss in place to control market liquidations. Also, other signal lines such as RSI, and MACD can be used to help identify when the market is about to be bearish.
For instance, in perpetual features, supertrend indicators convey a big role in helping identify when the market is about to be bullish or bearish. Thus placing stop loss becomes easy.
A bull strikes the market up as in real life when attacking its foe while a bear strikes the market down as it does in real life by swiping its foe in down motion. Therefore, the Supertrend Indicator is a signal line that enlightens when each is about to strike the market as demostrated by Joinfingrad.
Helps Easily Set Stop Loss Signals
Every trader aims to make a profit. Like any other investment, crypto trade comes with high-risk management as its subsequent profits. Understanding when to buy or sell is one thing but controlling losses is the major thing in any trade. Therefore, super trend indicators help know when to place a stop loss if the market is on an uptrend.
For instance, in perpetual features, supertrend indicators convey a big role in helping identify when the market is about to be bullish or bearish. Thus placing stop loss becomes easy.
What is a stop loss?
Crypto trades are highly volatile and require one to place a stop loss once a trade is in progress. Stop losses are liquidation points or points at which further losses are about to be experienced and the trading stock needs to be sold more so when a trend reverse begins.
If the market is bullish and you have placed the order, stop losses are placed immediately after the green line of a super trend indicator. As the market keeps an uptrend, stop-loss positions can be changed progressively. This means that, learning supertrend indicators you are less vulnerable to losses.
Supertrend indicator purposes to give directions of the market trade. However, waiting for a confirmed signal before getting into any trade especially when the market is highly volatile is of significant benefit to avoid false signals.
Supertrend Indicator is Simple and Effective
The supertrend indicator is very simple to read and very effective due to its accuracy. Once you have identified the color of a supertrend, you easily predict the direction of the market. Therefore, it is easy to identify entry and exit points or stop losses.
Supertrend Indicators are Powerful Tool When Used with Other Indicators
Learning other indicators helps traders perceive the market trends of any given trade. Indicators such as MACD, Bollinger Band, and RSI work hand in hand with super trend indicators to help identify when to enter and exit the market. They help to understand when the market is volatile and place stops loss effectively.
To achieve a perfect direction of trade and avoid losses, a deep study of indicators and their variables is vital. Engaging with various exchanges in cryptocurrency such as Binance, OKX, and many others can easily help identify various indicators. Also listening to other traders is another aspect that can help keep up with the market and its trends. However, one should be careful not to be deceived by market manipulators.
Limitations of Supertrend Indicators
Supertrend indicator limitations help traders understand where to put more effort when analyzing a market trend. Without further ado let’s verge deep to the demerits of supertrend indicator.
Supertrend Indicator May Result in False Signals
False signals are the result of relying on one indicator. Therefore, the Supertrade Indicator like any other indicator may result in false signals if the trade market is volatile.
For a productive trade, a trader will need to comply with more indicators or perceive the Supertrend Indicator in deeper length. A super trend indicator is a superb signal line that helps traders integrate various signal lines to comprehend the directions of the market trend.
Quite Challenging to Comprehend a Ranging Market and Trend Market
As the name implies, a supertrend indicator is used to determine trend markets but quite challenging when ranging markets are involved.
Ranging market results in more signals and can result in perceiving false signals if only the super trend indicator is applied to the range markets.
Conclusions
Supertrend indicators are of significance to new traders as they can easily tell when to join and exit the market. The indicator gives a clear view of the market trends by relying on past trades thus giving perfect signals for buying or selling.
However, Supertrend Indicators if only relied on at times can give wrong signals more so when the market is moving sideways. At this time a trader needs to engage other indicators such as RSI, MACD, Bollinger Band, and many others to easily identify the direction of the market.
Similarly, red and green line signals of supertrend indicators are open and easy to identify thus simplifying a trade. However, supertrend indicators are limited to range markets. Nevertheless, it is quite demanding to identify a correct signal if other indicators are not considered. Therefore, It is of great influence if one learns other indicators.
