SuperTrend

Supertrend indicator was created by Olivier Seban.

SuperTrend is a trend following indicator.

Supertrend indicator is used to indicate the direction of the movement of the market, that is whether the market is in an upward direction or in a downward direction.

Supertrend is based on previous high and previous low.This will help the trader to know the direction of the market

Supertrend indicator has red and blue lines.Blue line indicates the upward market direction while red line indicates the downward market direction
Supertrend indicator is based on ATR  of the upper and lower supertrend with a multiplier and therefore is calculated using the following formula;

upper supertrend= (high+low)/2+(multiplier*ATR)

lower supertrend=(high+low)/2-(multiplier*ATR)

Since supertrend indicator is based on previous low and previous high, it therefore follows that when the supertrend indicator rises above the previous high price,the supertrend will turn red thus an indication that the market has become overbought thus signaling the trader to close any buy position and open a sell position since the market will start moving downwards.
On the other hand, if the supertrend indicator falls below the previous low price, the supertrend will turn blue thus an indication that the market has become oversold thus signaling the trader to close any sell position and open a buy position since the market will start moving upwards. This is indicated as from the candle sticks chart below;



From the candle sticks chart above, the red and the green curve is the supertrend indicator.There is also two points, A and B which represent below lowest price and above highest price. At point A, the market was initially moving downwards.The supertrend indicator then falls below the previous highest high price at point A thus indicating an oversold condition at point A. This will signal the trader to close any sell position and open a buy position since the market is starting an upward trend as indicated by the upward arrow.
On the other hand, at point B,the market was initially moving upwards. The supertrend indicator then rises above the previous highest high price at point B, thus indicating an overbought condition at point B. This will signal the trader to close any buy position and open a sell position since the market is starting a downward trend as indicated by the downward arrow.

Recommendation: If you are a day trader, just use 1 min, 5 min, 15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want supertrend indicator to work well for you.