The Supertrend indicator shows the current trend direction of a stock using the ATR (average true range) with a multiplier. It is one of the simplest indicators to use as it displays green and red lines right next to the price action.
The strategy is to enter a long position when a green line appears, and exit when a red line appears. Shorting is the opposite: enter a short position when a red line appears, and exit when a green line appears. Simple as that.
Supertrend strategy for the SPY on the 5min timeframe
Results
Testing this strategy on the SPY has returned the following profit factors:
- 1min: 0.914
- 5min: 1.266
- 15min: 1.153
- 30min: 0.986
- 1hour: 1.009
- 4hour: 0.902
- 1day: 0.798
- Average: 1.004
The Supertrend strategy works on different timeframes, but the best ones were on the 5 minute and the 15 minute timeframes. Remember, different ticker symbols can provide different results.
TradingView Script
Try the Supertrend strategy for yourself on TradingView: https://www.tradingview.com/script/2IyydOCW-Supertrend-backtestx/
Test with your own tickers and timeframes to see how well it works!