There are two trend following indicators that work really well in filtering the trend: Moving average and Super trend. Moving average is simply the average of a specified number of closing prices. Super trend on the other hand is an indicator that is objectively calculated using ATR, Range of the candle and a multiplier.

Both the indicators play a similar role when analyzing the trend:

Price above EMA or Super trend is considered to be in a bullish trend.

Price below EMA or Super trend is considered to be in a bearish trend.

Although these both indicators are great when used individually, why not plot them simultaneously?

Understanding MAST

If both the indicators are plotted on the charts, the result will be the MAST indicator. MAST stands for Moving Average Super Trend indicator. Rather than plotting the two indicators separately, this indicator plots them simultaneously as one indicator. While plotting this indicator, Super trend is referred to as line 2 (L2) and Moving average is referred to as line 1 (L1)

The result of plotting this indicator is a cloud. The cloud is the area between the Super trend indicator and the MA. The color of this cloud depends on where the price is relative to the Super trend line. If the price is above the Super trend line, the color is green and shows bullish trend (L1 above L2) . If the price is below the Super trend line, the color is red and shows a bearish trend (L1 below L2). These colors can be changed as per the traders’ preference.

The cloud has a unique role. The cloud acts as Area of Value. An area of value is a place where valuable price action takes place. When the MAST cloud is bullish and the price reverts back to the MAST cloud, there is a higher probability that the price will form strong bullish patterns like Morning star pattern, piercing pattern, engulfing pattern, or Marubozu candle.

Observe the chart below: When the price was within the bullish cloud, the price made Market Structure Low (MSL) pattern twice. These patterns could have been a signal for a long entry. When the price was within the bearish cloud, the price formed a Dark Cloud cover pattern. This could have been a signal for a short trade.

Accuracy of the analysis can be further improved by doing multi-timeframe analysis or with the study of Relative Strength.

Using MAST on P&F charts

On PnF charts, there is an interesting concept called P&F setup. Understanding of P&F setup helps the analyst to understand the trend better. It further help us to understand if the pattern is forming in the direction of the trend or against the trend.

According to P&F setup:

If the MAST indicator is bullish and the recent pattern formed is also bullish, the set up or the subsequent direction of the price is assumed to be bullish.

Similarly, if the MAST indicator is bearish and the recent pattern formed is also bearish, the setup is said to be bearish.

But what if the trend and pattern are of opposite nature? In such scenarios, the setup is assumed to be sideways or neutral. The ideal thing to do when the current setup is neutral is to wait for the setup to turn bullish or bearish. That is,

If the MAST indicator is bullish and the setup is neutral, wait for a bullish pattern (the next DTB).

If the MAST indicator is bearish and the setup is neutral, wait for a bearish pattern (the next DBS).

Observe the chart below of JSWENERGY. The price is currently above the MAST cloud. The most recent pattern formed here is the bull trap pattern, which is a bearish pattern. Although the price is in a bullish trend as per MAST charts, the setup is actually neutral. only when the price forms a bullish pattern, the setup will turn bullish.

Similarly, if the same pattern formed when the price was below the MAST and the MAST cloud was bearish, the P&F setup would have been bearish.

We can also build a scanner to scan for neutral setups. In the following YouTube video, I have shown how to create a scanner based on P&F setup and MAST indicator. Do check it out!!

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