SuperTrend (ATR)

The SuperTrend is an indicator developed by Olivier Seban and widely used by futures traders.

It is a trend indicator which, unlike other indicators of this type, takes volatility into account.

The SuperTrend filters price fluctuations due to volatility more significantly than other trend indicators. Consequently, as long as the volatility persists, the trader can follow an intact trend for longer.

For example, compared to MACD or Parabolic SAR indicators, a short but violent movement in prices is enough to change the trend. However, after this brief deviation, the trend often continues, whereas the trader has likely already abandoned their position.

In Axial Finance, the SuperTrend exists in two different types: VOL and ATR, each type using a different method for calculating volatility.

The ATR type calculates volatility from the Average True Range (ATR). This indicator includes only two parameters and is highly prized by Forex traders.

It consists of a curve that alternates above and below prices to indicate the direction of the trend.

Calculation Method

The method uses the two parameters, period and ratio, specified below.

UpTrend = (High + Low) / 2 - ratio x ATR(period)
DownTrend = (High + Low) / 2 + ratio x ATR(period)

The trend turns bullish when the closing price is greater than the previous DownTrend value and bearish when the closing price is lower than the previous UpTrend value.

When the trend continues, the indicator equals according to the trend:

• the maximum of the current UpTrend and the previous UpTrend
• the minimum of the current DownTrend and the previous DownTrend

Indicator Parameters

• period: the calculation period for the Average True Range (ATR) (10 by default)
• ratio: to weight volatility (3 by default)

Example

Interpretation

The trend is bullish when the curve is green. It then lies below the prices.
The trend is bearish when the curve is red. It then lies above the prices.

The previous example well illustrates the maintenance of the trend during brief changes in the direction of price variations.
The choice of the "ratio" parameter allows for more or less filtering of these variations and must be adapted to the type of securities being tracked. A ratio of 3 is characteristic of Forex.