When you select Supertrend indicator from the list of studies you will be prompted for two inputs – Period and Multiplier.
Before understanding the supertrend indicator, understanding the ATR is necessary as super trend employs ATR values to calculate the indicator values. The supertrend indicator is plotted over the price chart of the stock or the index. The indicator line changes its color between green and red based on the price moment in the underlying. Super trend does not predict the direction, rather once the direction is established it will guide you to initiate a position and suggests you to stay in the position till the trend sustains.
What should you know?
When plotted, the supertrend indicator appears like a alternating green and red continuous lineA buy signal is generated when the stock/index price turns greater than the indicator value. At this stage, the indicator color turn green and you can also see a crossover of the price versus the indicator (price greater than indicator value)Once the long position has been established, the trader is advised to hold the position till the price closes below the green line. So in a sense the green line helps as a trailing stoploss for the long positionA sell signal is generated when the stock/index price turns lesser than the indicator value. At this stage, the indicator color turn red and you can also see a crossover of the price versus the indicator (price lesser than indicator value)The sell signal can be used to initiate a fresh short or exit long. Although waiting for the sell signal to exit the existing long position can sometime lead to taking a loss. So the trader should use his discretion hereOnce the short position has been established, the trader is advised to hold the position till the price closes below the green line. So in a sense the red line helps as a trailing stoploss for the short positionSupertrend is basically used to identify a trend therefore it works best in a trending marketThe supertrend indicator when compared to a regular Moving Average trading system generates fewer false signals, for this reason the super trend indicator is preferred over a Moving Average trading system