Super Trend strategy
I think this strategy could not be simpler which is probably why I like it. I’m simple! Using the super trend indicator we can enter and exit trades based on its value.
Just so we are clear before you read any further,
Disclaimer: I am publishing this strategy for educational purposes only. I accept no responsibility for loss incurred by any person or corporate body acting or refraining to act as a result of reading the following material.
The information provided is not offered as advice or recommendation to readers.
Below are the key elements to the strategy. Please bear in mind that this strategy is a work in progress!
Super trend indicator
The inputs for the super trend indicator this strategy uses are:
Number of periods = 10
Multiplier = 3
This essentially means when we enter a trade we will trail our stop by 3 x ATR (10).
If you want to learn more about the super trend indicator construction then you can read all about it on my super trend construction page.* NEW!
Buy/Sell when super trend crosses price and indicates a new trend has occurred.
There should also be some other price pattern in place for the trade to be considered. This can be a double, triple bottom formation, a reverse head and shoulders pattern, bouncing off support. This is not always essential for the trade but it’s preferable. (I think this area of the strategy could use further work)
If we find an instrument with a super trend cross that meets our risk requirements then we will enter the trade the next day as soon as we can. I used to like using orders to place trades but they do not really work for this strategy, therefore we will have to trade manually. If you are unable to trade via a market order you can use stop or limit orders to enter the trade at slightly higher or lower than the current price. It really depends on your own preference here. The only thing to note if you do use an order is that if you use a limit buy/sell order then you may miss out on the trade if the price does not fall or rise to your order level.
The stop position is determined by the super trend indicator value. I always round this value down to the nearest whole number if the value is greater than 0.1 above the value. If the value is less than 0.1 then I round down to the previous whole number. Confused? I am, see below for an example.
Super trend value = 116.2. This becomes a stop level of 116
Super trend value = 116.1 this becomes a stop level of 115.
Of course you don’t have to follow this rule but it’s what I do at the moment.
Oh and it goes without saying that if you have a short position you would round up and not down!
When to pyramid the position
Pyramiding. A position can be pyramided when the following is true. Price has retraced and is within 3% of the stop price. The positions is already 2x initial risk and 3x new risk in profit.
An example of when pyramiding is allowed.
We buy BP at 400p. With a stop set at 390p. Price rises to 430p and we move our stop to 420p. Price pulls back to 425p. So now we can pyramid this position. Our new risk is 5points our initial risk is 10points, 420/100 * 3 = 12.6. All our conditions are met we can pyramid into the position.
Locked in profit = 20pts
2x initial risk = 20pts
3xnew risk = 15pts
3% = 12.6pts
Length of trade.
We should expect this trade to potentially last forever. We adjust our stop based on the super trend indicator, when our stop is hit the trade is over.
Maximum risk per trade.
1% of total funds. If you are new to spread betting you should consider risking less until you are comfortable with trading. Consider 0.5% or 0.25% to start with.
Maximum risk in £/ (entry price – stop Price)
See my beginners guide for position size calculations.
When to exit the trade
When our stop level is hit
If you have any feedback for me on this strategy or any ideas for improvements or modification to the strategy please post your feedback over on the Spread Betting Forum.