The Supertrend indicator is a popular tool used to identify the direction of a trend and potential entry and exit points. It is plotted on the price chart and changes color based on the trend direction. When the price is above the Supertrend line, it indicates an uptrend, and when it is below, it indicates a downtrend.
The Supertrend indicator is based on the Average True Range (ATR), which measures market volatility. The calculation involves a multiplier and the ATR to plot the Supertrend line above or below the price, depending on the trend direction.
Traders use the Supertrend indicator to identify trend direction and potential trade signals. Here are some common uses:
Traders often combine the Supertrend indicator with other tools and indicators to develop trading strategies. Backtesting these strategies on historical data helps refine and improve their effectiveness.