Crypto Academy Season 5 [ Advanced course ] week 7: Crypto Trading With SuperTrend Indicator

in SteemitCryptoAcademy9 months ago (edited)

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Trading in the direction of the trend will always be a reliable and profitable principle for any financial instrument. The search for reliable trend direction signals led to the creation of the SuperTrend indicator - it can allow you to correctly "see" the main direction of a trend, open positions in time and follow the direction of the existing trend so that you can get the maximum profit.

In search of a tool that can determine the direction of the trend fairly accurately and does not fill the price charts of the trading instruments used by traders with unnecessary information, some traders have started to develop what is being done calls for hybrid indicators that combine the advantages of identifying indicators trend with the precision of multiple oscillator indicators.

As a representation of this family, the SuperTrend indicator is in high demand with manual trading as well as with automated trend-following trading systems. This indicator is very easy to use, does not require complicated settings, just attach it to the price table and use attractive and intuitive colors.

By the way, learning to trade supertrend is pretty straightforward. As you will find out today, the strategy recommended by the experts for this indicator is easier to follow than many others.

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The Supertrend indicator is one of the trend following indicators. As a result, it not only provides information about the current price development, but also helps traders to easily identify the direction of the trend in the chart. The indicator is based on the average value of the candles and measures volatility, that is, the extent of fluctuations, as a range between highs and lows. Price deviations, called deviations, are also taken into account, which means that more precise values can be calculated.

Starting from a starting value, the trend line extends in the chosen direction. While the indicator is below the price in an uptrend and thus serves as support, it is above in a downtrend and represents resistance.However, as soon as there is a strong reverse movement in the market , the indicator jumps to the starting value of the opposite direction. It thus indicates a change in trend.

The indicator can only change in the direction of the trend, if the volatility decreases, it is only drawn horizontally. It is one of the most well-known indicators in trading and is therefore available on almost all popular trading platforms.

The trader can set the period as well as the factor according to his own wishes. The period determines the length of the period that is taken into account for the calculation. The factor, on the other hand, serves as a multiplier to determine the distance between the mean and the overtrend. The larger the factor, the greater the distance.

As a result, however, the supertend also shows less trend changes. Which settings are the best cannot be said in general terms. Instead, it depends on the time period chosen, the market, and individual preferences.

When applied to the graph, the overtrend appears as a colored line. There are two indications that can be obtained:

  • The color of the line (red or green);
  • The direction of the line (bullish, flat or bearish).

By combining these two types of signals, we can get useful information about the price direction of a pair.

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Fig1: Here you can see what the supertrend applied to the Sol / Usdt even chart looks like

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The Super Trend indicator calculation method is based on two parameters, the period and the factor.

So here's how to calculate the SuperTrend:

  • UpTrend = (Higher + Lower) / 2 + factor x ATR (period)
  • DownTrend = (Higher + Lower) / 2 - factor x ATR (period)

In practice :

  • The value of the UpTrend is obtained by adding a multiple of the volatility;
  • The value of the DownTrend is obtained by subtracting a multiple of the volatility from the average price.

Reminder of the ATR calculation:

And since it differs from case to case, the calculation cannot be represented in a formula. The Supertrend indicator is based on volatility and is calculated on the basis of the Average True Range (ATR). For this, the trader needs three values:

  • The closing price of the last candle
  • The high price of the current candle
  • The bottom of the current candle

First, he compares the three distances between these values. For further calculation, however, it only needs the greatest distance, also known as the actual range. The trader adds up the true range over as many candles as defined under "Periods". It then calculates the average value by dividing the sum by the number of candles considered. The result is the Average True Range, or ATR for short. By adjusting the period, the trader can smooth the ATR.

In the next step, the trader averages the high and low of the current candle. The rest of the procedure is determined on the one hand by the direction of the trend and on the other hand by the individually defined factor. Suppose there is an uptrend (uptrend) and the factor is set at 3. In this case, three times the volatility or ATR is subtracted from the average value. If, on the contrary, there is a downward trend (downtrend), three times the volatility is added to the average price.

A check is then carried out on each candle to determine whether the value of the newly calculated indicator is moving in the direction of the trend. If so, it will be drawn and if not, the old value will continue to be used. As a result, the Supertrend indicator never goes against its trend direction. It is only when the market is broken that a trend change follows.

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At the beginning we said that this indicator has the advantage of being able to be used in any temporal situation: short, very short or long. However, it should be noted that the effectiveness can vary a lot depending on when you choose.

In general, for periods that are too short (less than an hour) it loses its effectiveness, but in all cases there is no single rule, so to decide on the best setting it is advisable to make a few attempts on the financial instrument that one intends to trade.

It thus happens that if in certain cases the use of a multiplier parameter equal to 3 (the one which is by default on the platform) can anticipate too much market exits, in other cases on the other hand, set it to 4 or 5 may have the opposite effect. Testing historical data can help us better choose the right parameter.

However, this is generally true for all indicators when it comes to deciding the best time frame for trading.

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Fig2: 10-3 signals. Both shorts are false signals that end in a loss.

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Fig3: Signals 10-3 and 10-4 compared. The first short has been filtered, the last long is late.

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Fig4: Signals 10-3, 10-4 and 10-5 compared. Once a court has been eliminated, another appears. The unfavorable movements undergone by the supertendence are very extensive.

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The Supertrend is particularly good at catching large trends and holding the position throughout without breaking out on small corrections in between. Due to its moderate sensitivity, it will not turn around immediately due to price volatility, as other indicators such as Parabolic SAR for example can. This sensitivity to volatility can also be refined by adjusting its coefficient (which is 3 as standard).

The strategy we see first assumes that the supreme trend is not able to find the ideal points to enter the market.

In this case, however, it remains a widely used indicator, but for the sole purpose of avoiding income at the wrong time.

The supertrend strategy is very simple:

  • If the indicator gives mixed signals, you are not entering the market;
  • When the signals are both bullish, only bullish entries into the market are taken into account;
  • When the signals are both bearish, only bearish market entries are taken into account.

You could say that in this case the supertrend works like a "traffic light", a tool that tells us when to stop and when to move forward with our trading positions.

This means that, on the other hand, we will have to use other tools to understand when the precise time is to invest.

This is a very reliable interpretation of supertendence. You will find that very rarely does a chart tend to go down when the indicator signals are both bullish.

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Fig5: Trend confirmation using Supertrend indicator TRX/USDT pair Chart .

The supertrend helps, immediately, to eliminate a good part of the transactions which could end at a loss.

Its flaw, like many trend indicators, is that it is irrelevant during the "trading range" phases when the market hesitates by moving without direction. In these cases it will generate small losses on round trips. On the other hand, they will be largely offset by the advantage of being able to focus on major underlying trends without leaving too early.

Anther small flaw to note is that the indicator takes a while to reverse when a trend reverses. It will therefore be difficult to capture market extremes. A refinement with other indicators, more sensitive in the short term, can give a complementary signal to optimize its entry and exit points.

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Some people think that the SuperTrend is more than just a “stop” or “go for it” signal. Used in a certain way, this indicator can be used to concretely find the right times to enter the market.

This strategy works by using times when the chart follows a direction opposite to that indicated by the supertrend.

If the supertrend indicates an uptrend, but the chart moves downward, you start to wait for the trend reversal. As soon as the supertrend changes direction and color, it's time to invest in the new trend.

The purists of this strategy also use the supertrend to close their position. In this case, it waits for the indicator to reverse color and direction again, then immediately closes the position.

Experts recommend using these signals to determine the direction of the trend and to support buy and sell decisions. The signals of this indicator are as follows;

  • A buy signal when the green Supertrend line crosses below the candlestick.
  • It generates a sell signal when the Supertrend red line crosses above the candlestick.

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Fig6: Determination Buy and Sell position using Supertrend indicator TRX/USDT pair Chart .

In summary, we can express it as an indicator which generates a buy and sell signal for trading, which places it above the candlesticks and gives the signal easily with red-green colors. It can be said that this is one of the best indicators, especially for people who want to trade on the basis of algorithmic trading, also known as algorithmic trading. However, one thing should not be forgotten: each market and investment instrument has its own unique character.

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The Supertrend indicator can also be used, for example, in the breakout strategy. For that, however, retailers need another metric: the so-called Donchian Channel. It represents the highs as well as the lows of the price over a number of time periods. Originally the 4 week period was used. As a result, the indicator has generated values during high and low prices over the past four weeks. Nowadays, traders can set the time period individually. The longer the period, the clearer the signals.

With the Supertrend and the Donchian Channel, we now observe the evolution of the course and a search for breaks or breaks. The supertrend serves only as a trend filter. According to this strategy, the trader opens a position when two consecutive candles come out of the Donchian Channel. Similar to the trend change strategy, a long position is opened when the upper limit is breached. In this case, the Supertrend indicator has an uptrend (bullish). This means that there is an upward trend. Thus, only buy signals are taken into account.

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Fig7: Chart with Supertrend indicator, Donchian channel and uptrend

However, if the lower limit is exceeded, a short position is opened. In this case, the Supertrend indicator is going down (bearish) and there is a downtrend. Therefore, only sell signals are taken into account.

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Fig8: Chart with Supertrend indicator, Donchian channel and downtrend

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To optimize the use of the indicator, there is also the possibility of exploiting the ST not in combination with another instrument, but by combining two Supertrend lines: a fast one (for example with parameters 21-2) and a slow one (the classic 10-3).

In this case, when the fast curve crosses the slow curve from bottom to top (both turning green), we have a long signal. Exit when the fast curve returns under the slow curve (and they both turn red). Basically, we expect both curves to be consistent as a color: they both turn red or green.

Let's see an example below where the main trend we've seen over a long time is bearish. For this reason, in our shortest time frame, we will only use the ST for short trades. We only enter the market when the slow and fast indicators both turn red (bearish). Here's what's going on ...

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Fig9: Chart combining two Supertrend lines

As long as the two STs are discordant, it will stay flat until the trend resumes. But when to define the resumption of the trend? When the fastest ST will be pierced by price, in other words, when the faster ST will line up with the slower.

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Like any other indicator, the supertrend works best when used with other indicators to obtain filtered signals. Personally, I like to pair it with the parabolic SAR, another technical indicator that we will come back to shortly. When the price crosses these two indicators upward (at the same time or with a few beating sessions), the increases observed are often stronger, longer and therefore more profitable.

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Fig10: Coupling of the weekly supertrend and parabolic SAR on the pair ETH/USDT price

We can observe that the bullish / bearish movements are often more important in the event of a double bullish or bearish breakout.

In addition, it is an indicator that requires waiting for the closure of the time unit in which it is used. Indeed, the supertrend is not affected by a wick, no matter how long it is. Only the location of the closing price relative to the supertrend account. This can lead to false breakouts during the session, in connection with the role of support / resistance that the supertrend can play. This support role can also, as a more dynamic investment, be used to strengthen or open a position.

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The advantages of the Super trend indicator :

One of the great advantages of the SuperTrend is that it allows you to take advantage of large trend movements because it does not stick to the price.

The SuperTrend allows you to identify powerful movements In terms of performance, over the long term, the Super Trend is one of the best.

The disadvantages of the Super trend indicator :

The Super Trend offers poor performance when the price moves in range, because in this configuration the Super Trend often changes direction.

It should therefore be used when the trend is strong.

We have seen how the SuperTrend is appreciable for the efficiency and the simplicity with which it facilitates our trading. Being a following trend indicator, we always suggest using it in a manner consistent with the main trend.

This tool has the great advantage - precisely because of its simplicity - of reducing the stress that accumulates during trading sessions, and therefore also of reducing potential errors. Like all instruments it also has some flaws, such as being a bit slow to let us know about entry (the first step in a new trend is actually sacrificed) but this is a price that can be borne given the overall effectiveness of the instrument.

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1. Show your understanding of the SuperTrend as a trading indicator and how it is calculated?

2. What are the main parameters of the Supertrend indicator and How to configure them and is it advisable to change its default settings? (Screenshot required)

3. Based on the use of the SuperTend indicator, how can one predict whether the trend will be bullish or bearish (screenshot required)

4. Explain how the Supertrend indicator is also used to understand sell / buy signals, by analyzing its different movements.(screenshot required)

5. How can we determine breakout points using Supertrend and Donchian Channel indicators? Explain this based on a clear examples. (Screenshot required))

6. Do you see the effectiveness of combining two SuperTrend indicators (fast and slow) in crypto trading? Explain this based on a clear example. (Screenshot required))

7. Is there a need to pair another indicator to make this indicator work better as a filter and help get rid of false signals? Use a graphic to support your answer. (screenshot required)

8. List the advantages and disadvantages of the Supertrend indicator:

9. Conclusion:

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 9 months ago 

Nicely delivered professor @kouba01, my post of your week3 hass not been voted ,this is my 4th time of reposting.

Link to the post @steemcurator02

@kouba01 ,Pls check formula for SuprtTrend Indicator. In words you give correctly but in formula ,I think you give wrogly.

Pls check once

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Thank you my dear

Always welcome professor

 9 months ago (edited)

SuperTrend indicator is in high demand with manual trading as well as with automated trend-following trading systems.

Hi professor @kouba01. This is pretty interesting. I'd like to know further information about the possibility of using trading bots due to the network problems in my country so I can't be able to provide a whole attention to the charts all the time but a few hours a day at least. What can you tell and recommend me regarding to my question? Regards I send from Venezuela hoping to now use the Super Trend. Excellent lecture for this week by the way. 👍🏼 Here's my link:

https://steemit.com/hive-108451/@alegnita/supertrend-indicator-crypto-academy-s5w7-homework-post-for-kouba

Please Profesor @kouba01, tengo una duda y quiero aclararla, creo que la UpTren es menos, porque está por debajo y la tendencia es alcista.

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Podemos verlo en el gráfico de tradingview, donde aparece en colores.

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DownTrend por estar encima del precio es suma (+) y UpTrend por estar debajo del precio es menos (-).

Disculpe y quiero aclarar, ya que estoy haciendo su tarea.

Muchas gracias.

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