Well, I tested supertrend indicator 100 times, and the results I found were pretty interesting.
In this video, you will learn about the supertrend trading strategy, it's real win rate, and
some disadvantages I found after testing it 100 times.
But first of all, if you haven't watched my ATR indicator video, maybe considered watching
it before this video, since Supertrend indicator relies on the ATR values to calculate its
values.
And maybe checkout other videos where i tested other trading indicators 100 times to find
their real winrates.
You can watch them on the official Trading Rush Website.
If you are new to trading, and have never heard of this indicator before, here's how
the popular Super Trend Indicator looks like.
Now, on some trading platforms, super trend indicator can look a little bit different.
But the basic indicator will look something like this.
A simple line that changes its color now and then.
These colors are usually red and green.
The supertrend indicator is very similar to a moving average.
and just like a moving average plotted on a chart, supertrend indicator will also give
crossovers time to time.
When the Supertrend line is below the price, the color of the indicator will turn green.
Similarly, When the Supertrend indicator is above the price, the color of the indicator
will turn red.
But what do these changing colors mean?
Well, as the name of the indicator suggests, the Supertrend indicator is trying to show
the current Price Trend.
It is trying to show the direction of the trend.
When the supertrend indicator is green in color, and is below the price, the price is
considered to be in an uptrend.
Similarly, if the supertrend indicator is above the price, and is red in color, there
is a downtrend going on.
Now to keep it simple, that's all supertrend really is.
An indicator to find the direction of the trend.
But people have figured out a way to use it as an entry signal generator.
That's right.
The simple supertrend entry strategy goes something like this.
You buy, when the supertrend indicator flips below the price, and the color of the indicator
changes to green.
Set your stoploss, at or below the supertrend indicator.
And you sell, when the supertrend indicator flips above the price, and the color of the
supertrend changes to red.
Set the stoploss, at or above the supertrend line.
Now once you have entered the trade, how can you exit using the same indicator?
Well, if you are not the trader that uses a fixed stop loss and profit target, you can
use the supertrend line to trail your stop loss.
When the supertrend indicator turns green and flips below the price, you can enter the
long trade, and trail the stoploss just below the supertrend line.
The line will eventually flip over the price, and then you can completely close your long
position.
If you have entered a short position when the supertrend flipped to red color, you can
trail your stop loss using the supertrend line.
Now if you have been trading for a while, you know we can't take every trade at every
entry signal given by the supertrend indicator.
Using the indicator just to find the trend direction is fine, but using it as a entry
signal generator on its own can be bad idea.
If you take every entry signal given by the supertrend, you will end up taking short positions
in a strong long term uptrend, and long positions in a strong long term down trend.
So to filter out the false signals given by the supertrend indicator, we will use the
200 period exponential moving average.
200 period moving average is widely used to find the direction of the long term trend.
If the price is above it, there is an uptrend going on, and if the price is below it, there
is a downtrend going on.
So here's how the modified supertrend indicator trading strategy goes.
And I have also tested the supertrend indicator 100 times in the same way, and the results
were pretty impressive.
In the long setup, only buy when the supertrend line turns green and goes below the candles,
and the price is still above the 200 period moving average.
Set your stop loss, at or below the supertrend line.
In the short setup, only sell when the supertrend indicator turns red and flips above the candles,
and the price is still below the 200 period moving average.
In this short set up, you can set your stoploss at or above the supertrend line.
So using the Trading Rush App to track my trades, I tested the supertrend strategy 100
times on the Euro JPY pair.
But I quickly ran out of market data and had to switch to the Euro USD pair.
When I tested other indicator strategies 100 times, I used a fixed stop loss and profit
target.
So to keep things similar, I have used a fixed profit target and stoploss as well.
In the Trading Rush App, you can see the winrate and the profit graph changing as I take more
trades.
If you haven't already, you can download the Trading Rush App from the Play Store, or using
the link in the description.
You can use it to keep track of your trades while backtesting your trading strategy.
While the backtesting clip is running, here are some important things and disadvantages
I found about the Supertrend indicator.
Number 1.
Supertrend Indicator, only shows the current direction of the trend.
It cannot predict the trend direction.
This is why it is better to use the 200 period moving average with the supertrend indicator
if you are using it as an entry signal generator.
Number 2.
You cannot blindly take every trades given by the supertrend.
If you do, you will end up taking trades in the opposite direction of the long term trend
as price gives many pullbacks in a long term trend.
Number 3.
While testing this strategy 100 times, I found that I was losing trades, and was not getting
a good risk to reward ratio, because the stoploss i was setting using the supertrend line was
sometimes too far from the entry.
Since price does not move infinitely in the same direction, most of the time, my stoploss
was hit as price reversed before hitting the profit targets.
So maybe consider setting your own stoploss using simple price action levels, when the
Supertrend stoploss is way too big.
So after testing the supertrend indicator 100 times, I found that the win rate of the
supertrend strategy is approximately 46 percent.
Since I used the 1.5 to 1 reward risk ratio with other trading strategies in my previous
backtesting videos, I have used the same 1.5 to 1 ratio with this strategy as well.
And because of that, even with a win rate of 46 percent, I was able to make a profit.
During this backtest, I was able to win 7 trades in a row.
but also lost 7 in a row.
Even though the supertrend didn't produce a very good winrate like some other indicator
strategies I have tested before, the Supertrend Trading Strategy is still a profitable strategy.
That's all.
Now you know more about the super trend indicator.
Like the video if you liked it.
Subscribe for more videos.
Check out the Trading Rush App and Trading Rush Website for more back testing videos.
Thanks for watching, and thanks to all the patrons who make these videos possible by
supporting the channel on Patreon.
You are Awesome.