Q1 : Show your understanding of the SuperTrend as a trading indicator and how it is calculated?
When trading in the crypto space, we all know that the are a lot of things you need to take into consideration otherwise you will be making a lot of loss. Because the market is very is full of volatile cryptocurrencies meaning the prices of the asset are not fixed they can change at any point in time either rise where traders will make more profits or fall at which point traders begin to make lots of loss.
It is with this view certain trade experts have developed ways for which we can minimize and be able to pre determine either the future price of the assets or the direction of the price of the asset (Bullish or Bearish) these techniques are called Indicators. There are over 200 indicators that can help traders make the most profit in their trades. I will be talking about the SuperTrend as an indicator.
The SuperTrend indicator is a technical tool that is able to graphically show the direction of an asset. Whether it’s in a bearish season or a bullish season. The indicator was developed to base its calculation of the average values of the candle stick and to do so a formula was created to help calculate the values I will explain about that later.
I made mention that it graphically determines the direction of the trend. Someone might ask how does it do this. Well the answer is quite simple the SuperTrend indicator represents the two directions we have with two colors that is for the downward direction we have the color Red allocated to it. And for the upward direction the color green is also allocated to it. So with this the traders know exactly when to jump into a trade and the right time to opt out of a trade. This makes this indicator widely used among traders when they want to determine the direction of the trend. Below is a chart of BTC/USD time frame 15 mins showing the SuperTrend indicator.
From the chart you can clearly see what I was talking about that is the red signifies the bearish season whiles the green signifies the bullish season.
How is the SuperTrend indicator calculated??
It’s basically just a little maths we will do here it’s not anything complicated now in calculating the SuperTrend indicator, we will need to do so in two section the first one is calculating for the upward trend and also calculate for the downtrend. So let’s start with the first one.
Calculating for the uptrend.
So first we will need the highest price of the candle stick which we will add to the lowest price and divide it by 2 which will then be added to the multiplier X the Average true range.(ATR). So mathematically we have;
Uptrend = (highest price + lowest price) / 2 + multiplier x Average True range(ATR)
please note that in other to calculate for the ATR we use the formulae
ATR = (previous ATR * (n-1)) + current TR] / n" where n = 14.
Calculating for the downtrend
So first we will need the highest price of the candle stick which we will add to the lowest price and divide it by 2 which will then be subtracted from the multiplier X the Average true range.(ATR). So mathematically we have;
Uptrend = (highest price + lowest price) / 2 - multiplier x Average True range(ATR)
Q2 : 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)
The SuperTrend has two main parameters namely; the Periods and the factor (multiplier) when you launch you chart by default the two parameters are set to 10 and 3 respectively but this settings can be changed a little to suit the traders choice. Let’s see how to add it to a chart before we talk about How to configure it or whether it’s advisable to change the default settings or not.
How to add the SuperTrend indicator into a chart.
First of all we need to go to the tradingview website you can do so with this LINK
1 - Click on charts
2 - From the search engine Select your crypto asset and click on fx, search for Supertrend and click on it form the list of options provided.
5 - The indicator successfully applied.
How to configure it.
Since we have established the fact that the default settings of the indicator is 10 - 3 where the 10 represents the periods or ATR and the 3 represents the multiplier, When you click on settings on the SuperTrend indicator, there are three ways you can configure the indicator namely you can configure the input, the style and the visibility Let’s take a look at the them one after the other.
Input
This is where the trader is able to change the default settings of the indicator from the 10 - 3 to either 10 - 4 or 10 - 5 depending on the choice of the trader.
Style
In this section you are also at liberty to change the colors of the trends for the default we have red which signifies the downtrend and also green to signify the uptrend you can change the colors but I wish you don’t you might get mixed up. You can also adjust the thickness of the line if the trend.
Visibility
Is also a feature that will help in adjusting the chart to make it more clearer. So apart from the input feature I don’t think you need to configure any settings from either the style or the visibility.
Is it advisable to change its default settings?
Yes I think it’s advisable to change the default settings though some traders might think different but let me try to prove why i think it’s advisable to change the default settings in the input section. At default the periods - multiplier is set to 10 - 3. When you set it to this parameter the signals of the indicator isn’t given much time to react to the market thereby producing fast signals. These signals may sometimes tend out to be fake.
So if you use only this indicator to perform a trade without using any other indicator which is capable of filtering all these false signals you might trade at a loss. Let’s apply the 10 - 3 and see how the indicator reacts.
From the screenshot above you can see that the 10 - 3 parameters is producing a lot of signals if you base your trade decision on only this you might run a loss because some of this signals might be false.
Now let’s change the multiplier from 3 to 4 and observe the differences.
From the screenshot above when I changed the multiplier from 3 to 4 it filtered the false signals thereby reducing the amount of signals that were produced in the first chart. So I believe it’s advisable to configure the settings in the input.
I keep saying the settings to input because I don’t think it’s advisable to change the settings in the style because at default the red stands for downtrend whiles the Green stands for uptrend so if you change it to different colors you might get mixed up because we are very much used to the red and green in trading.
Q3 : Based on the use of the SuperTend indicator, how can one predict whether the trend will be bullish or bearish (screenshot required)
This particular indicator has made it very easy to predict wether the trend is either bullish or bearish. Let’s start with the bullish season for a bullish season to take place there is supposed to be a significant increase in volume or the volume of the asset should be in an increase this maybe a result of hard purchase on the assets this makes the price the asset to be in a continuous rise. The SuperTrend indicator signifies this move with a green color. So whenever you spot the color green in the trend of an asset in the SuperTrend indicator it clearly signifies a bullish season. Let’s look at this chart below.
Bearish season
this is the exact opposite is the bullish season for a Bearish season to take place there is supposed to be a significant decrease in volume or the volume of the asset should be in an decrease this maybe a result of hard sell on the assets this makes the price the asset to be in a continuous decline. The SuperTrend indicator signifies this move with a Red color. So whenever you spot the color red in the trend of an asset in the SuperTrend indicator it clearly signifies a Bearish season. Let’s look at this chart below.
Q4 : Explain how the Supertrend indicator is also used to understand sell / buy signals, by analyzing its different movements.(screenshot required)
If this indicator is capable of identifying a bullish and a bearish season, identifying a sell and buy signal is also of it capabilities. In other for traders to make good profit identifying the right sell signal is important so that you don’t make lots of loss and also identifying the right buy signal is important because that’s how lots of traders make profit. Let’s see how to identify proper buy and sell signals using this indicator.
Buy signal
To make this very simple for us all a correct Buy signal clearly comes from a bearish trend reversal what this means is that from the downtrend and about to change direction which is the exact moment the SuperTrend signals a uptrend with the color green is the right moment for you to buy the asset and make lots of profit. Take a look at the chart below.
Right after the bearish trend reversal a buy signal is spotted so the trader can place his buy trade the.
Sell Signal
This also the opposite of the buy signal. a sell signal clearly comes from a bullish trend reversal what this means is that from the uptrend and is about to change direction which is the exact moment the SuperTrend signals a downtrend with the color red is the right moment for you to sell the asset in other not make loss. Take a look at the chart below.
Right after the bullish trend reversal a sell signal is spotted so the trader can place his sell trade the.
Q5 : How can we determine breakout points using Supertrend and Donchian Channel indicators? Explain this based on a clear examples. (Screenshot required))
Determine breakout points in a chart are very good ways to be able to know wether the asset will either go up after the breakout or go down. So to be able to determine this we will be adding another indicator which is called the Donchian channel this indicator is made up of three lines the upper band, the middle band and the lower band.
1 - Launch your chart with the SuperTrend already added to it and click on fx and In the search engine type donchian channels and hit enter. Select it from the list of options that appear.
2 - Indicator added successfully.
Breakout In A Bullish Trend.
For a breakout in a bullish trend to occur, the upper band of the donchian indicator needs to be broken by two bullish candles. Where the breakout occurs can also serve us a buy signal for the trader because the price of the asset will going in an uptrend. Let’s look at the chart below
From the chart above you can clearly see that the upper band of the Donchian indicator was broken by two bullish candle sticks hence a bullish breakout.
Bearish breakout
We know that the bullish season is the opposite of the bearish season so For a breakout in a bearish trend to occur, the lower band of the donchian indicator needs to be broken by two bearish candles. Where the breakout occurs can also serve us a sell signal for the trader because the price of the asset will going in an downtrend. Let’s look at the chart below
From the chart above you can clearly see that the lower band of the Donchian indicator was broken by two bearish candle sticks hence a bearish breakout.
Q6 : 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))
Yes of course there is definitely an effectiveness when you combine the two fast and slow SuperTrend indicators because we know that with the fast parameter which is the 10 - 3 if produces some signals which may not be true and can lead you to loss of funds if the false signals are really false so adding the slow parameter which is the 21 - 2 it will help improve the effectiveness of it. Let’s see how it helps us for. Now when the fast SuperTrend indicator (21 - 2 ) moves above the slow one (10 - 3 ) and the two SuperTrend turn green is a clear sign that we are entering a bullish season and a strong buy signal for traders.
Also, it can also be used to determine strong sell signals when the fast SuperTrend (21 - 2) moves below the slow one (10 - 3 ) and they are both the same color red it signifies a bearish season and also a very strong sell signal for traders.
Q7 : 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)
Yes. It’s very important we use other indicators to confirm the direction of the SuperTrend indicator. It doesn’t only apply to this type of indicator because we are told that no indicator is 100% perfect so in other to get the best results adding other indicators will help make or confirm the what the SuperTrend indicator is saying.
For this purpose I will be adding the two EMA indicators and configure them to 50- EMA and 20 - EMA the 50 - EMA is distinguished from the 20 - EMA by changing the cookie to blue and the 20 - EMA green. The main idea behind this is when the 50 EMA moves above the 20 EMA it signals an upward trend. And when the 20 EMA moves above the 50 EMA it signals a downtrend.
So with this perspective it will be able to filter any false signal that will be produced by the SuperTrend. In addition it also helps trader confirm an upward trend and thereby place a buy order in other make profit. Let’s take a look this chart.
From the SuperTrend it shows an upward movement by indicating with the color green, so when the 2 EMA was added, the 50 - EMA moved above 20 - EMA signaling an uptrend. And also confirming the SuperTrend indicator.
Let’s look at another scenario, when the 20 - EMA moves above the 50 - EMA it signals a downtrend. So again it’s added to a chart that already contains the SuperTrend indicator it’s purpose is to filter the false signals if there are any. And confirm the direction of trend.
Form the chart you can see that the 20 - EMA moves above the 50 - EMA confirming the direction of the SuperTrend which is the downtrend.
Q8 : List the advantages and disadvantages of the Supertrend indicator:
Since every indicator is not 100% it’s bound to have some qualities that will not be pleasing to traders or certain faults. The SuperTrend indicator has its advantages and disadvantages but the when advantages are more than the disadvantages it worth using. So let’s loo at some advantages and disadvantages of this indicator
Advantages of the SuperTrend indicator
1 - It graphically tells the user this is an uptrend and this is a downtrend because when the users sees the red he knows it signifies downtrend and when you see the green you know it signifies an uptrend.
2 - It’s concept is very simple and very easy to understand you don’t have to do anything complex new traders can use it Because it’s so simple.
3 - It clearly shows as both buy and sell signals so that traders will know the right time to opt into a trade and also the right time to opt out of a trade.
4 - it works perfectly with other indicators.
Disadvantages of SuperTrend indicator
1 - It sometimes produces false signals and it’s not advisable to use only it to make trading decisions rather add another indicator to confirm before you make your decision
2 - The indicator can not be used in a ranging market since in a ranging market it’s difficult to see it’s trend. Whiles this indicator is used to identify market trends.
Conclusion
I believe that the invention of the super trend will definitely help users who don’t have much knowledge on indicators since it very simple to use and also works very fine. With this they are able to predict the direction of the asset wether it’s going bullish or bearish.
With this in mind you can also be able to determine the right sell entry or the right buy enter to make the most out of the crypto market. Just like all indicators, they are not 100% and it’s required you add certain indicators to get the best out of it.
Thank you professor for this wonderful lecture i have really learnt a lot. Happy new year I hope this brings as more blessings and long life. Thank you.
please note that all unsourced images are from TradingView
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