Description
The Supertrend Indicator is a technical analysis tool developed by Olivier Seban and released in 2008. It is a trend following indicator that is used to identify the current trend in the market and also to identify potential trend reversals. The Supertrend indicator is calculated using the average true range (ATR) of the underlying security and the closing price. This indicator is also known as the Supertrend line.
Supertrend indicator is a volatility-based indicator. It is calculated by taking the average true range (ATR) of a security and multiplying it by a factor. The factor is determined by the volatility of the security; the higher the volatility, the higher the factor. The ATR is then added to the closing price of the security to determine the Supertrend line. The Supertrend line is then used to identify the current trend in the market.
This indicator is a trend following indicator, meaning that it is designed to identify the current trend in the market. When the Supertrend line is above the current price of the security, it indicates that the trend is up. Conversely, when the Supertrend line is below the current price of the security, it indicates that the trend is down.
The Supertrend indicator is also used to identify potential trend reversals. When the Supertrend line crosses above the current price of the security, this indicates a potential reversal from a downtrend to an uptrend. Similarly, when the Supertrend line crosses below the current price of the security, this indicates a potential reversal from an uptrend to a downtrend.
This indicator is not meant to be used as a stand-alone indicator; it should be used in conjunction with other indicators to confirm the trend reversal. For example, if the Supertrend line is crossing below the current price of the security, this might indicate a potential reversal from an uptrend to a downtrend. However, it is important to confirm this reversal using other indicators such as the Moving Average Convergence Divergence (MACD), the Relative Strength Index (RSI), or a momentum indicator.
The Supertrend indicator is a simple yet powerful tool for traders and investors. It is easy to understand and can be used to identify current trends in the market as well as potential trend reversals. However, it is important to remember that it should not be used as a stand-alone indicator; it should be used in conjunction with other indicators to confirm the trend reversal.