Evaluation of Super Trend indicator’s parameters for …

Evaluation of Super Trend indicator’s parameters for major FOREX pairs over 12 years

Abstract

The Super‐Trend indicator used in technical chart analysis provides signals whenever a rate change appears that excess an upper or lower border. The borders are defined by the Average‐True‐Rate of a given past‐period‐window times a defined multiplier‐parameter. The Super‐Trend indicator is frequently used in chart analysis like in FOREX trading, but no systematic and large‐scale analysis of the parameters influence was available yet.

In this study, we used real daily rate date of major FOREX pairs of the last 12.5 years and calculated trading performance for 9,200 Super‐Trend parameter pairs each. A long trade was open whenever the indicator signals an up‐trend and closed if a change to down‐trend occurred and vice versa for short trades.

Our analysis revealed that for some currency pairs like EUR/USD a huge parameter range delivers good results, whereas for some markets like  GBP/JPY the parameter range is quite limited. Beyond, we provide an overall impression of Super‐Trend’s parameter robustness and suggest this
methodology as a framework for further indicator evaluations. In addition, we provide optimal parameters of the Super‐Trend indicator for major markets on daily basis evaluated over a time period of more than 12 years for the first time.

Introduction

Technical chart analysis (TA) tries to predict future movements of financial markets based on chart data (Wikipedia, Technical Analysis, 2011). A corner stone of TA is the use of indicators that are supposed to give relevant information of current and future price developments (Wikipedia,
Technical Analysis, 2011). A multitude of indicators are available, an overview of basic concepts is given for example in (Wikipedia, Technical Analysis, 2011) or in the (VTAD Wiki).

Here, we analyzed the relatively new Super‐Trend indicator as published on mql4.com (Robinson, 2008) and further described for example by Kolier (Kolier, 2010). Briefly, the indicator is a break‐out indicator which provides a signal for an up‐ or down trend whenever the break‐out border is crossed
by the current price. The borders are calculated by the current price plus the Average‐True Range (ATR) (Wilder, 1978) times a multiplier parameter. The ATR is an average of the True Range (Wilder, 1978) and provides a measure of the volatility. Therefore, the Super‐Trend indicator gives a signal if sudden price movements exceed the expected market movements.

The Super‐Trend indicator experienced an astonishing attraction with more than a million web pages (Google search ‘super trend indicator’, 2011/08) already. However, although widely used, no systematic and no large‐scale analysis of the Super‐Trend indicator is available so far. Here, we simulated trading based on Super‐Trend indicators’ signals for major FOREX pairs of real daily rates of the last 12.5 years. We evaluated about 10,000 Super‐Trend parameters for 12 major FOREX pairs and provide novel insights into the applicability of the indicator as well as best parameter setting for the first time.