Supertrend
Trend
A trend-following band based on volatility (ATR). The line sits below the price in an uptrend and above it in a downtrend, and flips on a breakout.
In its original form this indicator uses volume and/or the daily range (High/Low). The scanner only has closing prices and approximates those inputs (see the note at the bottom). So treat the absolute values as indicative; the direction and the crossings remain usable.
Construction & calculation
- Compute the ATR over 10 periods (the average daily move).
- Upper band = mid price + 3 x ATR; lower band = mid price - 3 x ATR.
- The bands are 'locked': they may only shift in the direction of the trend.
- If the price closes above the upper band, the trend turns bullish and the lower band follows as support; if it closes below the lower band, the trend turns bearish.
Upper band = (H+L)/2 + multiplier x ATR(10)
Lower band = (H+L)/2 - multiplier x ATR(10) with multiplier = 3.0
Interpretation
- Green (line below the price) = long; red (line above the price) = short or cash.
- The line itself is an excellent trailing stop: it accounts for the stock's volatility, not a fixed percentage.
- The higher the multiplier, the fewer flips and the later the signals.
How the signal works in this scanner
Buy signal (green)The trend flips to bullish within the last 3 bars (the Supertrend line moves below the price).
Sell signal (red)The trend flips to bearish within the last 3 bars.
Watch-outs & pitfalls
- Like the PSAR this is a pure trend follower: in a range-bound market it is flip after flip.
- The signal comes after the move by definition. You never buy the bottom, but you do get into the trend.