A very common problem with the intraday traders is that which indicators work well for the intraday trades. Being an intraday trader, chances are that you use technical analysis to identify trades based on different parameters.
However, the first indicator which comes to our mind for intraday trading is Super trend due to its simplicity. A ‘Super trend’ indicator can give you precise buy or sell signal in a trending market.
You can watch the video below to get a better idea of the concept and use of Super trend indicator:
A Super Trend is a trend following indicator similar to moving averages. It is plotted on price and the current trend can simply be determined by its placement vis-a-vis price. It is a very simple indicator and is constructed with the help of just two parameters- period and multiplier.
When we construct Super Trend indicator, the default parameters are 10 for Average True Range (ATR) and 3 for its multiplier. The average true range (ATR) plays a key role in ‘Supertrend’ as the indicator uses ATR to compute its value and it signals the degree of price volatility.
How to identify buy and sell signal?
Super Trend being a trending indicator works beautifully in trending markets (both uptrends and downtrends). The buy-sell signal can easily be identified when the indicator flips over the closing price. A buy signal is generated when the Super Trend closes below the price and the color changes to green. On the other hand, a sell signal is made when the Super Trend closes above the price and the color of Super Trend turns red. You may do NSE Academy Certified Technical Analysis Course to learn Technical analysis from the very scratch and also to learn various strategies to trade in the market.
There’s no technical indicator which can be 100% accurate and so is Super Trend also. It also generates false signals in the sideways market, though it gives lesser false signals as compared to other indicators. So you can combine Super Trend with other indicators to get better trading signals.
Trading strategy using Super Trend and Moving Average Crossover
This strategy basically comprises of Super Trend and 5-20 EMA crossover. When the Super Trend turns green (i.e. Super Trend is below the price) and 5 EMA is above 20 EMA, a buy signal is generated. Similarly, when the Super Trend turns red (i.e. Super Trend is above the price) and 20 EMA is above 5 EMA, a sell signal is generated.
The below is the chart of Nifty. The buy signals are shown with the help of green arrows and the sell signal is shown with the help of red arrows. As you can see in the chart that you can really catch big moves based on this strategy and keep trailing your stop loss with the help of Super Trend to protect your profits.
A Super Trend indicator can be used on equities, forex, or futures on various time frame including hourly, daily, weekly etc. However, Super Trend needs to be used in conjunction with other indicators like RSI, Parabolic SAR, MACD, etc to receive filtered signals.
Moreover, Super Trend also works as a trailing stop-loss for the existing trades and acts as a strong support or resistance.