The word SuperTrend is very delicious. It looks far better and mouth watering, when seen in Kite. Though blindly following from Supertrend to Supertrend doesn't give any result.
So how can Supertrend (ST) be used? I invite all the friends here with their opinion / experience.
To give it a start; following are my views
It can be used in any of two following ways:
1. Since it is trend showing tool, before taking any trade based on traders strategy, he can check with the trend showed by ST. Only trades complying with the then trend of ST may lead to profit.
2. If ST is only the strategy, it can be used with "trailing the profit".
When to enter: Entry to do at beyond high of ST (In longs) and Below the Low of ST (In Shorts).
Important-> If new highs or lows are made, entry to do above/below that new level as shown in following image of banknifty 15 minutes in Kite. If new signal comes, before the trade is taken, leave previous signal and work with new signal.
How to trail:
* Taking example of Banknifty, enter in trade with 4 lots with SL of 40 points.
* Exit 2 lots at 20 point profit. In 99% cases, this should not be a problem as movement of 20 points for banknifty is easy. This would reduce loss, if SL is hit further.
* Exit 1 lot at 40 point profit. This will ensure some profit in the trade.
* Trail by 80, the remaining one lot for 300 point profit. Why 300, because 300 points movement in a day for banknifty is possible and seen.
Also refer: http://tradingqna.com/45119/trade-supertrend-with-discipline-will-profitable-end-month#a45123
If you following every signal in ST from start to end, backtesting shows incredible results. But I am not sure, if that is practically possible.
I didn’t quite understand the 2nd point. Can’t correlate it with the image. Can you please clarify.
There can be basically three levels for entry in the trade after any type of signal including Supertrend.
- Close of the signal candle
- Open of the Next candle to the signal
- Above High (In case of Long) or Below low (In case of Short) of signal candle
My suggestion is using third method.
For example, in the image above, the signal is for short, so my suggestion is to enter in the trade when the low of the signal candle is broken. i.e. value goes below the low of the signal candle.
But if you have observed, the candle next to the signal candle has formed different LOW. Hence entry to make when low of this candle is violated.
However, next candle again makes new LOW. This continued till the fifth candle from signal candle. The sixth candle violated LOW of its previous candle. So enter in the trade at the LOW of fifth candle. (I have counted starting from signal candle being one)
You can either keep observing violation of LOW/HIGH and when violated enter. OR
Put order using Trigger price in normal BUY/SELL Window.
Hope this explains my point.
ZeroDha PI doesn’t provide this as part of TradeScript language. Hence back testing in PI is not possible. However, as discussed in detail in your another question, merely following ST to ST may not give profit as expected