Trading is easy, however, consistently profitable trading is where the difficulty lies. Traders since the beginning of time have tried to come up with a strategy that they could use in order to increase their win rates while minimizing their risk. In this article, we go over one of the ways in which you could do so, by using the Triple SuperTrend in conjunction with volumes as a trading strategy. We discuss the different indicators, the settings used, and also go over the results. Read on to find out more.
There are 4 main indicators used in this trading setup, and each of these indicators has been explained below in detail.
The SuperTrend indicator is mainly used by traders in order to understand the trend of the stock price – it indicates whether the market is currently bullish or bearish on the stock. They work in a way very similar to the Moving Average indicators. Traders normally opt for using 2 or more SuperTrend indicators in conjunction with different periods to increase the reliability of this indicator. The two parameters that can you can tweak are the ATR period and the multipliers. While the SuperTrend indicator also provides buy and sell signals, they have been disabled for this strategy.
The EMA is simply the exponential moving average of the stock’s closing price over a given number of trading sessions. It works in a very similar way to the SMA (Simple Moving Average), except it gives more priority to more recent data as this is considered to be more relevant than old data. The parameter that you have to enter for the EMA is the time period. Usually, traders only go long when the current price is above the EMA, and short when prices go below the EMA.
The RSI is a momentum indicator that is used to analyse the stock and identify if it is overbought or oversold at any point in time. It does this by monitoring the magnitude of recent price changes. The RSI is presented as a number between 0 and 100, wherein a number below 20 represents an oversold stock (ripe for a long position) and a number above 80 represents an overbought stock (ripe for a short).
Time Segmented Volume
The TSV indicator is a volume-based indicator that is used to analyse the trading volume for a particular stock. This is done by segmenting the stock’s price and volume into specific time intervals. This can then be used to identify regions wherein the stock was accumulated and distributed.
For this particular trading setup, the following settings were used on the indicators:
- Triple SuperTrend: The buy and sell signals were disabled for each SuperTrend
- SuperTrend 1: ATR period = 10; ATR Multiplier = 1
- SuperTrend 2: ATR period = 11; ATR Multiplier = 2
- SuperTrend 3: ATR period = 12; ATR Multiplier = 3
- RSI: No adjustments
- TSV: A zero-line was added to indicate positive volume wherever available
- EMA: Period = 200
A long position was initiated whenever the current price was above the EMA, at least ⅔ SuperTrends were in the green, the RSI was below 20, and the TSV was positive.
A short position was initiated whenever the current price was below the EMA, at least ⅔ SuperTrends were in the red, the RSI was above 80, and the TSV was negative.
The risk/reward ratio was set at 1:2.
Results and Adjustments
After a 15-minute scalping session over the course of 6 months worth of past data, the overall results were:
Profitability: 187.98% net profit
Number of Trades: 131
% of trades profitable: 74.05%
Profit factor: 1.613
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- The ADX indicator could be added to weed out bad trades that would’ve been made when the trend was about to end.
- Tweak the Multiple Take Profits to increase your profitability on trades and reduce losses
- Change the risk/reward ratio to boost your net profits while reducing your win rate.
There are several highly profitable trading strategies that you can use in order to trade the markets and profit, but there are few that are as highly effective as the one discussed above. By implementing it even in its current form, you can make significant profits. You can also tweak the settings and alter the parameters on your own, resulting in a higher win rate and/or profitability.
- ADX – Fidelity
- Time segmented Volume – Investopedia
- Exponential Moving Average – Investopedia
- SuperTrend Indicator – Nifty Trading Academy