The Supertrend indicator is one of the most powerful indicators of trends, and is really to be used because it is either orange,indicating a bullish trend, or red, indicating a bearish trend.
So you can say in a moment if a particular forex pair or market trends upward or downward on any given time frame, and you can also use it to signal a pattern shift when it changes from
green to red, or vice versa.
I’ve been using this metric for many years now, but I’ve been experimenting with it recently to build a long-term trading strategy that you can use on weekly charts.
The technique will probably work better on stocks because for long periods of time these will always trend up or down, but it can also work well on forex pairs as well.
The Supertrend indicator is the cornerstone of this strategy, and you need to apply four Supertrend indicators with different settings to this particular strategy which are as follows:
Supertrend (3, 3)
Supertrend (3, 10)
Supertrend (3, 40)
Supertrend (3, 160)
The first number is the multiplier which should remain constant, and in this case the second number is the number of days, or weeks.
I am still playing with this technique, but you essentially want to go long when all four indicators are orange, and short when all four indicators are red, entering a trade when the last of these
indicators changes colour.
You can either enter at the close of the weekly trigger candle, or wait for a pull-back before entering a position because these pull-backs seem to occur regularly when you get a big change in trend.
Exit points are much more difficult to pinpoint. One obvious strategy is to wait until all four Supertrend indicators change color, but the downside of that is that when you give back a lot of your income there may be times.
An alternative strategy is to wait until just one Supertrend indicator changes color before closing a spot, or close half at this stage and close the other half when the long-term Supertrend, i.e. the 160-period Supertrend,
eventually changes color.
Real Life Example
If you look at the GBP / USD pair’s weekly chart above, you can see that the last three configurations would have been very lucrative for trade if you closed the place each time one of the Supertrend indicators changed color.
Trade 1 – short at 1.4782, exit position at 1.2951, profit = 1831 points
Trade 2 – long at 1.3196, exit position at 1.3534, profit = 338 points
Trade 3 – short at 1.3302, today’s price = 1.2783, profit to date = 519 points
This plan is still a lot of work underway, so I welcome any feedback or suggestions you might have (leave your comments below).
The downside of this approach is that when you get false breakouts, there may be times, and if you exit a trade when one of the Supertrend indicators changes colors, the losing trades might be quite high when you
get one of those fake breakouts.
Nonetheless, the upside is that you could potentially make a profit for thousands of pips, particularly on the weekly time frame, because after all four indicators turn green or red the patterns can be long and sustained.