Yes or No? Adopting the Supertrend indicator in your trading strategies?

I have to admit that my attention was drawn by the name of this indicator at the first glance. Therefore my interest in implementing a series of backtesting against this indicator was unavoidable. In today’s article, we’re going to introduce what Supertrend indicator is about and how to produce one yourself. After that, I will show you a series of backtesting that I have performed and see what we can get out of them.

Introduce Supertrend indicator

What is Supertrend

Supertrend indicator was created by Olivier Seban to help identify trends and to know when to buy or sell a financial asset. Similar to Bollinger Bands, Supertrend involves an upper band and a lower band that is derived from the close price in order to find out the signals to show the trend of prices. Essentially, it is a trend-following (lagging) indicator.

When we construct the Supertrend indicator strategy, the default parameters involve using Average True Range (ATR) with the period of 14 and another parameter of 2 as its multiplier. The average true range (ATR) plays a key role in Supertrend as the indicator uses ATR to compute its upper- and lower- band values in results triggering the buy and sell signals.