Indicators assist in forecasting how the market is doing and potential price adjustments in the future.
There have been several forex market indicators over the years. However, the Supertrend indicator is one of the most well-known indicators in today’s forex market.
Traders use indicators to determine whether to enter or exit a trade based on profitability. Supertrend is one of the traders’ critical techniques to make precise entry and exit choices. In a trending market, the Supertrend indicator reveals the price direction.
Subsequently, it is one of the few indicators capable of assisting investors in making accurate trading decisions such as buying and selling.
How does Supertrend work?
The Supertrend indicator is based on two critical fundamental features. The values-period is the first, and the multiplier is the second.
Furthermore, the indicator is dependent on the Average True Range, which is critical in determining the market volatility value for a range of prices in a particular time.
First, it is preferable to compute the series of True Range values and then divide the result by the number of the period indicated by n. To calculate the moving average, you must first get the TR values for the series.
Then, it should be divided by the number of the period indicated by n. The method aids in calculating the moving average of natural ranges. Supertrend indicates in a simple line of red and green color.
But what do these changing colors mean?
The Supertrend indicator attempts to represent the current Price Trend and the trend’s direction.
When the super trend indicator is green and lower than the price, the price is said to be on an uptrend.
Similarly, a downtrend is effective if the super trend signal is red in hue above the price.
Most traders have figured out a way to use it as an entry signal generator.
You buy when the super trend indicator flips below the price, and the indicator’s color turns green. And you sell when the super trend indication crosses above the price, and the super trend indicator becomes red.
How can you exit a trade once you’ve entered it using the same indicator?
If you are not a trader who utilizes a set stop loss and profit objective, you can trail your stop loss using the super trend line.
When the super trend signal goes green and flips below the price, it is time to start a long trade with a stop loss below the supertrend line.
The line will finally cross the price, and you can exit your long position fully.
If you had entered a short position when the super trend flipped to red color, you could trail your stop loss using the super trend line.
If you’ve been trading for a long, you’re aware that we can’t accept every trade at every entry signal generated by the super trend indicator. Using the Supertrend indicator to find the trend direction is fine, but using it as an entry signal generator can go wrong.