Captures sustained trends with built-in trailing stop mechanism
| Strategy Type | Trend Following with Dynamic Stop Loss |
| Market Outlook | Captures sustained trends with built-in trailing stop mechanism |
| Risk Profile | Low to Moderate - Clear stop levels defined by indicator |
| Reward Profile | Unlimited profit potential in trending markets; 1:2 to 1:4 typical R:R |
| Time Horizon | Swing trading (3-15 days) to Positional (1-3 months) |
| Capital Requirement | £15,000 - £60,000 for a cash share position; from ~£3,000 in margin for spread bet/CFD exposure (FCA 5:1 retail cap on equities) |
| Margin Type | Cash for share delivery; margin (5:1 retail cap) for spread bets, CFDs and single-stock futures |
| Best Used When | SHEL in clear trending phase with adequate volatility |
| Lse Applicability | SHEL (Shell plc) is ideal for Supertrend due to clean trend structure, deep institutional participation creating sustained moves, and the highest liquidity on the London Stock Exchange ensuring reliable indicator signals. As one of the largest energy and petrochemicals constituents of the FTSE 100, its trends are well-defined and far less prone to noise than smaller caps. |
| Fca Compliance | Fully compliant standard trading strategy using a technical indicator. Cash share purchases incur 0.5% Stamp Duty Reserve Tax. Leveraged exposure via spread bets or CFDs is FCA-regulated under COBS 22.5: retail leverage on individual equities is capped at 5:1, with mandatory negative-balance protection and a 50% margin close-out rule. |
| Lot Sizes | 1,000 shares per contract (ICE Futures Europe / Eurex single-stock futures) • 1,000 shares per contract (ICE Futures Europe, third-Friday expiry); predominantly an institutional market with lower retail liquidity than cash shares or spread bets • No lot restriction; quoted in pence (GBX). Normal market size (EMS) around 750 shares; retail positions typically 100-2,000 shares based on capital |
| Trading Hours | 8:00 AM - 4:30 PM London time (GMT/BST); opening auction 07:50-08:00, closing auction 16:30-16:35. Signals valid on daily/hourly timeframes. |
| Expiry Considerations | For single-stock futures positions, roll 3-5 days before the third-Friday expiry to maintain the trend position. Spread bets and CFDs can be held as rolling daily (funded overnight) or as futures-dated contracts. |
| Tax Implications | Cash shares and CFDs: CGT at 18% (basic rate) / 24% (higher and additional rate) on net gains above the £3,000 annual exempt amount - no holding-period distinction; Section 104 pooling and the 30-day rule apply. Spread bets: tax-free for retail (no CGT, no Stamp Duty). Cash share purchases: 0.5% Stamp Duty. Holdings inside a Stocks & Shares ISA: CGT-free. |
Default 10/3.0 works well for daily charts. For more signals, try 7/2.5. For fewer but stronger signals, try 14/3.5. Start with default and adjust based on your experience.
No. Supertrend automatically trails as price moves in your favor. Simply update your stop to match the current Supertrend value daily.
You can enter the next day at open if Supertrend color hasn't changed. Or wait for a pullback to Supertrend for better entry. Don't chase if price has moved significantly.
Yes. Use hourly or 15-minute timeframe with tighter settings (7/2.0). However, daily Supertrend for swing trading is more reliable for beginners.
False signals occur in range-bound markets. Check ADX - if below 20, market is choppy. Also check if there were multiple recent flips. Supertrend works best in trending markets.
Best combinations: ADX for trend strength (>25), RSI for momentum (>50 for longs), 50 EMA for trend confirmation. Don't over-complicate - max 2-3 indicators total.
Yes, if a fresh valid signal occurs (new color flip). But wait for confirmation - don't enter immediately after stop. The new signal should meet all criteria.
Avoid new entries 5 days before results. For existing positions, either exit before results or widen stop. Post-earnings, wait for volatility to settle before fresh signals.
Supertrend doesn't dictate holding period - you hold until color flips. Typically 1-4 weeks for daily chart trades. Could be months in strong trends.
If price gaps below Supertrend, exit at open. Don't wait hoping it recovers. The gap itself confirms trend change. Accept the larger loss and move on.
Quarterly review is sufficient. Only change parameters if performance degrades for 3+ months. Standard 10/3.0 is robust - over-optimization often hurts more than helps.
Supertrend typically wins 45-55% of trades. Profitability comes from wins being 2-3x larger than losses. Focus on letting winners run rather than improving win rate.
Use fixed fractional: Position = Risk Amount / Supertrend Distance. Wide Supertrend = smaller position. This keeps risk constant regardless of volatility.
In practice, no - keep it rule-based. Supertrend's edge comes from disciplined, transparent execution, and AlgoKing deliberately avoids AI/ML-driven signals or AI stock screening: they add overfitting risk, opacity and curve-fitting without a reliable live edge. A well-tested rule-based Supertrend with sound risk management consistently outperforms over-engineered ML overlays for retail traders.
Allocate 25-30% to Supertrend strategies across 3-5 uncorrelated stocks. Track aggregate exposure. Use correlation filters to avoid concentrated positions. Review portfolio metrics monthly.
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