A ‘Supertrend’ indicator is one, which can give you precise buy or sell signal in a trending market. As the name suggests, ‘Supertrend’ is a trend-following indicator just like moving averages and MACD (moving average convergence divergence). It is plotted on prices and their placement indicates the current trend.

The Supertrend indicator is a trend following overlay on your trading chart, much like a moving average, that shows you the current trend direction.

The indicator works well in a trending market but can give false signals when a market is trading in a range.

It uses the ATR (average true range) as part of its calculation which takes into account the volatility of the market.  The ATR is adjusted using the multiplier setting which determines how sensitive the indicator is.

The changing colors determine the trend direction of the instrument you are trading.

When the indicator flips to green due to the closing price being above the line, a buy signal is generated.

Once price closes on the oppositive side of the line, it flips from green to red and a sell signal is generated.