Introduction to the Super Trend Indicator
One of the methods that traders use to determine a potential trend reversal is with the use of the Average True Range (ATR). The idea is that the market has reversed whenever price moves against an established trend by more than a multiple of the ATR.
Let us take a look at the Super Trend indicator which is an indicator based on this concept.
What is the Super Trend Indicator?
The Super Trend indicator is a trend following indicator which makes use of the ATR as a basis for identifying trend reversals.
It plots a line below price action to indicate a bullish trend, and above price action to indicate a bearish trend.
This version of the Super Trend indicator shades the area between price action and the Super Trend line to visually indicate the trend direction. A pale green shade indicates a bullish trend, while a bisque shade indicates a bearish trend.
How the Super Trend Indicator Works?
The Super Trend indicator plots a line away from price action with a distance which is based on the product of the multiplier and the ATR. In an uptrend, the indicator subtracts the product of the multiplier and the ATR from the highest high within the preset period. In a downtrend, it adds the product of the multiplier and the ATR to the lowest low within the same preset period.
The line shifts whenever price closes on the opposite side of the line. This also changes the color of the shade between the line and price action.
How to use the Super Trend Indicator for MT5
The Super Trend indicator has three variables within its settings.
“Periode” refers to the number of periods in which the highest high or lowest low is based on, as well as the number of periods the ATR will be computed on.
“Multiplier” refers to the multiplier used to determine the distance of the line from price action.
“Show as DRAW_FILLING” toggles the shade between the line and price action on or off.
The Super Trend indicator can be used either as a trend direction filter wherein traders would trade only in the direction indicated by the Super Trend line, or as a trend reversal signal wherein traders would open trades on the shifting of the lines.
Buy Trade Setup
When to Enter?
The Super Trend line should be below price action. Wait for price to pullback on an uptrend market. Open a buy order as soon as a bullish reversal candlestick pattern forms after the pullback. Set the stop loss below the pattern.
When to Exit?
Close the trade as soon as price action shows signs of a probable reversal.
Sell Trade Setup
When to Enter?
The Super Trend line should be above price action. Wait for price to pullback on a downtrend market. Open a sell order as soon as a bearish reversal candlestick pattern forms after the pullback. Set the stop loss above the pattern.
When to Exit?
Close the trade as soon as price action shows signs of a probable reversal.
Conclusion
The Super Trend indicator is a widely used trend following indicator. It is highly useable both as a trend direction filter or as a trend reversal signal indicator.
It is also best used when the trades are opened at or near the beginning of a fresh trend reversal.
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