Tools on price: Supertrend, Parabolic SAR and Ichimoku

Unlike oscillators, which sit in a separate pane below the chart, some indicators are drawn directly on price. Their advantage is fast readability: one glance shows which side of the tool price is on. Three well-known examples are Supertrend, Parabolic SAR and the Ichimoku cloud.

Supertrend

Supertrend is built on ATR. A line is plotted a multiple of ATR (for example three times a 10-period ATR) below or above price. When price closes above the line, it sits underneath and signals a bullish state; when price closes below it, the line flips above price.

Many traders use Supertrend as a trailing stop. It behaves smoothly in clear trends, but in ranging markets it flips repeatedly and produces a series of false signals.

Parabolic SAR

Parabolic SAR appears as dots above or below the candles. In an uptrend the dots sit below price and move closer to it at an accelerating rate as the trend continues. If price touches the dots, they switch to the other side. This makes SAR useful for exiting trend trades, but because it is always either above or below price, it keeps flipping in directionless markets.

Ichimoku Kinko Hyo

Ichimoku is a complete system made of five components:

• Tenkan-sen: the midpoint of the high and low of the last 9 periods; the fast line.
• Kijun-sen: the midpoint of the last 26 periods; the base line.
• Senkou Span A and B: the two lines that form the "cloud" (kumo), plotted 26 periods ahead.
• Chikou Span: the closing price plotted 26 periods back.

The simple reading is that price above the cloud suggests a bullish backdrop, below the cloud a bearish one, and inside the cloud an undecided market. Cloud thickness is sometimes read as the strength of that support or resistance zone. The original settings were designed for the Japanese stock market with six-day trading weeks; some crypto traders adjust them for a seven-day market, but no setting is definitively "correct".

Key takeaways

• Supertrend is ATR-based and often used as a trailing stop.
• Parabolic SAR helps in trends and misfires in ranges.
• Ichimoku combines several tools in one system; the cloud is its key zone.
• All three are designed for trending conditions.