Today’s crypto market is an ultimate source of income for those who have the courage to take bold investing decisions. Yet, such trading also involves high risks related to frequent and unexpected rate fluctuations. So, a trader usually needs to utilize additional instruments to monitor and analyze trends and minimize loss risks.
What do you need it for? This fundamental technical instrument is designed to show a trader the direction of the current trend and provide exact signals on whether he should enter or exit the corresponding deal. In other words, this function is used to determine when it is time to buy or sell the asset chosen.
What does it look like? It is a line, which is integrated right into the market chart. It reflects dips and rises in value. When it grows, it is colored green, when it falls ― red.
It is developed based on two factors: the values-period and the multiplier. Also, it is influenced by the Average True Range.
Now, to help you form an objective view of the utility of the Supertrend indicator, we will tell you about its pros and cons.
Advantages:
- enhanced accuracy and precision;
- compatibility with virtually all trading platforms;
- ease of use;
- suitable for beginners;
- helps to take intraday trading decisions quickly and effectively.
Disadvantages:
- effective for trending periods mainly;
- subject to delays at times;
- must be utilized in combination with other indicators.
Also Read: Forex Trading Tax UK: A Overview for Beginners
How to interpret this indicator? First, make sure the market is currently trending. If this is the case, you can rely on the signal provided. Then, check where the Supertrend line closes. If it closes below the price, its color will be green. And that is a prompt to make a purchase. And, in the reverse situation, the color of the line will turn red, and you should consider selling the asset. Yet, as it was already mentioned, you must always back up your decision with other signals, for example, with those provided by the Parabolic Stop And Reverse or Moving Average Convergence Divergence Oscillator.
In sum, the Supertrend indicator is among the fastest and most accurate instruments you can use to get buy or sell signals. Thus, we insist that you must master it and apply it in your trading routines.