SuperTrend Trapping Candle Strategy

The SuperTrend Trapping Candle Strategy indicator identifies high-probability entry points by detecting "trapping candles" that occur within an established SuperTrend, allowing traders to enter positions before a trend continuation move begins.

Usage

The strategy is designed to find counter-trend candles that signal a temporary exhaustion of the opposing force.

• Long Entries: Occur when the SuperTrend is in an uptrend (green) and a "trapping candle" (a small red candle with specific volume characteristics) is detected. A green triangle appears below the bar. A typical entry is taken when the price breaks above the high of the red trapping candle.
• Short Entries: Occur when the SuperTrend is in a downtrend (red) and a "trapping candle" (a small green candle) is detected. A red triangle appears above the bar. A typical entry is taken when the price breaks below the low of the green trapping candle.

To filter out sideways markets, users should combine these signals with broader price action analysis or additional trend-strength oscillators.

Details

The script identifies two primary types of trapping behavior based on price and volume:

1. Strong Volume Reversal: A candle moving in the opposite direction of the trend with higher volume than the preceding candle.
2. Decreasing Strength: A sequence of three candles moving against the trend with consistently decreasing volume, suggesting the counter-move is losing momentum.

The indicator also applies a "Small Candle" filter to ensure the trap is localized and hasn't already moved significantly against the primary trend, which helps in maintaining a favorable risk-to-reward ratio.

Settings

• ATR Length: Determines the lookback period for the Average True Range used in the SuperTrend calculation.
• Factor: The multiplier applied to the ATR to determine the SuperTrend distance from price. A lower factor results in a more reactive trend line.
• Candle Height: A percentage-based filter (default 0.003% of price) used to ensure trapping candles are relatively small compared to the current price level.

FAQ

How do I use the trapping signals?

You can look for the triangles plotted on the chart. A triangle suggests that the counter-trend movement is weak, providing an opportunity to join the primary SuperTrend direction.

What are the best stop-loss placements?

For long trades, stop losses are commonly placed below the trapping candle's low or the nearest swing low. For short trades, they are placed above the trapping candle's high or the nearest swing high.

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.