SuperTrend Performance Manual
SuperTrend Performance is an improved and augmented version of the original SuperTrend indicator. It builds upon the original by displaying trade performance metrics calculated for the signals that SuperTrend has plotted on chart. With these metrics, you are able to gauge how well the indicator is actually performing – as though you have a built-in backtester on the chart.
The advantage of this indicator is that it lets you assess how well the current SuperTrend settings are working, whether they would be profitable to trade, and whether they could use adjustment. To better understand SuperTrend Performance, and how exactly it improves upon the original SuperTrend, it’s first important to understand how the ‘classic’ version of SuperTrend works.
What is classic SuperTrend?
SuperTrend is a one of the most popular and influential trading indicators in the public domain. It is available for most platforms and is used by thousands of traders worldwide.
It was developed by the French author and trader Olivier Seban who described the indicator in his book ‘Everybody Deserves to be Rich’. Since then, it has gone on to receive widespread recognition as one of the great indicators for trend following and trend reversal traders.
How it works
SuperTrend is a very simple indicator based on a straightforward idea: ‘When trend reverses upwards, go long and use a trailing stop. When trend reverses downward, go short and use a trailing stop’. That’s it. SuperTrend is what is called an ‘always-in-the-market’ or ‘stop-and-reverse’ trading strategy. This means that the indicator will always be suggesting either a long or short position – it never goes flat. The idea is that you can take advantage of both trend directions.
On the chart below we can see SuperTrend applied. When a green arrow appears, it signals a long entry; when a red arrow, a short entry. A trailing stop is always plotted, and when a trade ‘stops out’ or triggers its trailing stop, an entry in the reverse direction is signaled. It’s a simple but powerful trend following approach.
The logic is super simple. In fact, there are only two parameters to SuperTrend: “Period” and “Multiplier”. The period sets the lookback for the calculation of the average true range (ATR), which is really just a measure of current volatility. This multiplier then sets how many multiples of this ATR you would like the trailing stop to trail by. For example, if the period is 14 and the multiplier is 2, then the trailing stop line will trail current price by a value of (2 x ATR(14)).
Essentially, the period sets how far back you want to look when calculating the ATR, and the multiplier sets how many multiples of this ATR you would like to trail by.
The issue with SuperTrend
The problem is: how do we know what the best settings are for these period and multiplier parameters? From symbol to symbol, time frame to time frame, and chart to chart, the optimal settings will always be different, and judging which will be the best is generally left to guess work. You may have an intuition or tend to use the same parameters across the board, but this isn’t really the ideal approach, because there is a best setting. SuperTrend Performance on-chart metrics are built to help you find these best settings.
SuperTrend Performance is an improved version of SuperTrend which displays performance metrics on the chart for easy evaluation of the expected profitability. These metrics enable you to gauge how well the settings you’ve selected have worked historically – with the idea that we can realistically project similar performance for them going into the future.
These metrics include:
- Profit Factor
- Tick P/L
- Number of Trades
- Profitability Percentages
The indicator contains the original SuperTrend settings (multiplier and period) as well as a ‘reversal policy’ setting for determining whether the indicator should simulate trade reversals/exits upon a simple ‘touch’ of the trailing stop loss line, or upon a close above/below it (the classic approach).
In addition to the various styling inputs for the trailing stop line and buy/sell markers, there is also an option to set the backtest start date from which SuperTrend Performance will calculate its performance metrics.
This backtest start date is important for determining how much data you would like the indicator to consider in its backtest. On a smaller timeframe such as the 15 minute for example, it makes more sense to limit the backtest the performance results to the last couple of months, as opposed to backtesting the results for the past couple of years. Market conditions change, and it is best to ‘optimize’ your settings and performance metrics within a reasonable lookback period to reflect the performance of SuperTrend in current market conditions.
This tutorial explains the indicator and covers how to use and apply the various included scans.