Strategy: Multiple Supertrend
The Multiple Supertrend Strategy combines three Supertrend indicators with distinct settings to enhance trend confirmation and trade timing. This approach leverages the synergy of multiple parameters to filter noise and improve signal reliability, particularly for volatile stocks. Below is a detailed breakdown.
Strategy Components
Supertrend Line Configuration:
Supertrend 1 (7,3): Short-term trend, using a 7-period ATR and multiplier 3. Highly sensitive to price changes, ideal for early signal detection.
Supertrend 2 (10,3): Medium-term trend, with a 10-period ATR and multiplier 3. Balances responsiveness and stability.
Supertrend 3 (11,2): Longer-term trend, using an 11-period ATR and multiplier 2. Focuses on broader trend direction with reduced whipsaw.
Stock Selection:
Universe: Focus on the previous day’s highest-moving stocks. These typically exhibit strong momentum, aligning with the strategy’s trend-following nature.
Rationale: High volatility increases the probability of sustained trends, making Supertrend signals more effective.
Trade Execution Rules
Entry Conditions
Long Entry: Trigger when all three Supertrend lines simultaneously turn green (below price). Requires confirmation from at least one closing candle to avoid false signals.
Short Entry: Activate when all lines turn red (above price), confirmed by one closing candle.
Timing: Begin scanning at market open but avoid entries within the first 30–60 minutes due to opening volatility.
Exit and Stop-Loss Management
Trailing Stop-Loss: Place between the two closest Supertrend lines. For long positions, set below the higher of the two lines; for short positions, above the lower line. This dynamically locks in profits while allowing room for normal retracements.
Take-Profit: Target a 1:1.5 risk-reward ratio. Exit when price reaches this level or if any Supertrend line reverses direction.
Practical Application Example
Setup: Apply the three Supertrend indicators to a 15-minute chart of a high-mover stock (e.g., from the prior day’s gainers list).
Signal Confirmation: Wait for alignment of all three lines (e.g., all green for a buy). After one confirming candle, enter long.
Stop Placement: Set initial stop-loss between Supertrend 1 (7,3) and Supertrend 2 (10,3) lines. Trail upward as the trend progresses.
Exit: Close the trade at 1.5× risk or if Supertrend 1 (most sensitive) flips to red.
Advantages and Limitations
Strengths:
Triple confirmation reduces false signals in trending markets.
Trailing stops capitalize on strong trends while protecting gains.
Weaknesses
Lags in sideways markets; avoid during low volatility.
High mover stocks may gap, increasing slippage risk.
Optimization Tips
Combine with Momentum Filters: Use RSI or MACD to validate overbought/oversold conditions before entry.
Backtesting: Test settings against historical data for your asset class (e.g., equities vs. crypto).
This strategy excels when applied to volatile instruments with clear trends, leveraging multi-timeframe confirmation for robust entries and dynamic risk management.
Summary
Three Supertrend Indicators Used: Supertrend (7,3) S, upertrend (10,3) , Supertrend (11,2)
Stock Selection Criteria: The universe consists of the previous day’s highest movers (stocks with the most significant price movement)
Trailing Stop-Loss Management: Stop-loss is placed between the two closest Supertrend lines and dynamically adjusted as price moves to protect profits and limit risk
Execution Timing: Strategy activates as soon as the markets open to capture early trend opportunities. We need to analyse this approach through backtesting.
References
https://tradingliteracy.com/triple-supertrend-indicator/
https://www.fisdom.com/what-is-supertrend-indicator-how-to-use-it/
https://blog.elearnmarkets.com/supertrend-indicator-strategy-trading/
https://deepvue.com/indicators/supertrend-indicator/
https://www.tradersdna.com/mt-4-supertrend-indicator-2/