Supertrend, 200-day EMA and RSI: trend tools explained

Trend indicators turn a price chart into a simple yes-or-no question: is this going up? Used as conditions in a rule-based strategy, they decide what may be bought and when a holding is sold.

The 200-day moving average (EMA)

A moving average is the average price over the last n days. The exponential moving average (EMA) gives recent days more weight, so it reacts a little faster.

• Price above its 200-day EMA is a common sign of a long-term uptrend.
• Price below it is a common sign of weakness.

Shorter averages (20 or 50 days) react faster but give more false signals. A "golden cross" is when the 50-day average rises above the 200-day average.

Supertrend

Supertrend draws a line below the price in an uptrend and above it in a downtrend. The distance comes from the average true range (ATR), a measure of how much the price usually moves. The common setting is 10 days and a multiplier of 3.

• Green (price above the line): uptrend.
• Red (price below the line): downtrend.

It is popular as an exit rule, because it flips only after a meaningful move against the trend.

RSI (Relative Strength Index)

RSI compares recent gains with recent losses on a scale of 0 to 100, usually over 14 days.

• Above 50: gains have been outweighing losses.
• Above 70: often called overbought; below 30: oversold.

In momentum strategies, "RSI above 50" is sometimes used as a confirmation before buying.

Using them as conditions

In MomentumScore each condition can be:

• Keep if: checked on rebalance days; needed to be bought and to stay held.
• Buy only if: checked only before buying; what you hold is not sold for it.
• Sell when: checked every day; a holding is sold the first day it is true.

A typical combination is buy only if price is above the 200-day EMA and sell when Supertrend turns red.

Indicators describe what price has done. They do not know what it will do next, so always test them on history before relying on them.