This helpful and user-friendly tool reveals signals according to the current situation on the market. It will advise on the moment to purchase or sell.
Supertrend Indicator: How to use for crypto trading
12 May, 2023
Each asset on the market has its own value that is unstable over time. It may rise or fall and we call the process volatility that is a highly challenging characteristic of the crypto market. To operate within it, trend lines are built taking into account different positions of the asset. In addition, there are special tools for their comparison and prediction. These are indicators and each trader selects his own set of them to perform the analysis and build a strong successful strategy for actions. Here we are going to discuss the Supertrend indicator, how it works and what useful data it can bring to you.
All you need to know about the Supertrend indicator formula
This indicator appears as the color changing according to the observed trend. Thus, it follows the trends and creates signals for action according to their reversals. Usually, it works well for markets that are known as trendy. How to read the Supertrend indicator? Imagine that the price of some asset is placed above the line. In such a case, it becomes green and it is advisable to open a purchase signal. On the contrary, when the it is falling and is found below, the indicator becomes red, and it is high time for a sell. This tool is shown on the asset’s price and accounts for two main characteristics, namely a period for the average true range (ATR) and the multiplier. The ATR reveals the asset’s price range, so it corresponds to its volatility and possible movements in the nearest future. Basically, according to traders, this tool is perfect for markets with more stable trends but may generate mistakes in signals in case of some highly unpredictable movements. However, it is often used, especially as a part of the analysis system.
How to use Supertrend indicator?
As we have already mentioned, it has two colors to reveal the situation. A green line reveals a signal for buying, while a red one shows the time for selling. The point where the change of color occurred is known as the crossover. Thus, the green line corresponds to the bullishness and the red line to the bearishness, and their relationships are utilized to detect support and resistance zones and the stop-loss levels. For its calculation, you have to select the period as some days. According to this value, the ATR is calculated. Then the multiplier is utilized to get the resulting value that you observe as an indicator. Thus, if you take 10 days as a period of interest, the indicator performs an analysis of the prices that were observed during it. The combination is divided by two and from it, the multiplier and the ATR value are subtracted in the case of uptrends and added in the case of downtrends. There are standard settings, namely 10 for ATR and 3 for a multiplier. However, you can change them manually according to your needs. That is recommended for experienced traders and those who already have the basic knowledge of this instrument and its utilization. Thus, when you lower the parameters, the total number of signals increases. That means they come faster but they may contain more mistakes. Such false signals may spoil the strategy, especially if you do not combine this one with other tools. Therefore, it is better to start from the standard settings and then move toward more advanced techniques.
If you wish to make your analysis stronger and more reliable, start by combining this indicator with the Relative Strength Index (RSI). The latter utilizes two weeks default period and reveals values below 30 for an oversold market. Thus, it comes as a signal to purchase. On the contrary, its value above 70 shows an overbought situation and time to sell. Therefore, these two instruments give very similar information but they analyze a bit different parts of the market and their complex utilization is always beneficial. Another interesting case happens with the MACD. This one is much more sophisticated and takes into account many slightest movements on the market. Still, it is aimed to reveal uptrends and downtrends. Thus, one can easily compare the results of these two indicators and act when they match. One more option that is helpful is Parabolic SAR that reveals the strength of the trend. It is also very similar to the discussed indicator and has enough sensitivity to prove the analysis made before. Altogether, there are numerous indicators useful for traders. They are based on different values and time frames. Therefore, it is crucial to build up your own strategy according to your goals and then collect a set of the required tools to achieve them. Thus, the Supertrend indicator is a perfect tool for trendy markets and short-term strategies. It is simple and easy to use and can be combined with other similar options to make an accurate analysis and profit from it.
Frequently Asked Questions
This tool was developed, first of all, for trendy markets and revealed their good understanding and prediction.
When the price exceeds the trendy line, it becomes green and one can open a purchase signal. If it is decreasing and going below, it becomes red, and it is a sell signal.