A Supertrend flip is a very simple event: the indicator changes from a bearish state to a bullish one, or vice versa. In the Bitcoin Future chart above, around 23:00 CEST yesterday, the 15-minute Supertrend flipped from bearish to bullish. Before the flip, the Supertrend was above the price. After the flip, it moved below the price and began following the market from underneath.
This does not mean that the Supertrend knows Bitcoin is going to rise. It knows nothing about the future, which is probably just as well. The flip simply means that the recent price movement has been strong enough, relative to current volatility, to make the indicator change regime.
The interesting part is how Taleb might interpret such an event.
He would probably not ask, “Is a Supertrend flip a good buy signal?” He would ask something more uncomfortable: “What happens when the signal is wrong, and what happens when it is right?”
A flip can be false. Bitcoin may rise enough to trigger the bullish flip and then immediately reverse. In that case, the signal is wrong. But sometimes the flip occurs at the beginning of a much larger move. The price may continue rising for several ATRs while the Supertrend remains below it and follows the trend.
That creates an interesting asymmetry. If the losses from false signals are limited, while successful signals can occasionally capture very large movements, the system does not need to predict the future correctly every time.
So yesterday's flip should not be interpreted as:
“Bitcoin is going up.” That would be asking a small technical indicator to perform an impressive feat of clairvoyance.
A more Talebian interpretation would be:
“The market has changed enough to make the Supertrend change regime. Now we observe what happens.”
The distinction matters. The first approach tries to predict the market. The second tries to construct a position that can survive being wrong while remaining exposed to the possibility of a large move.
The market does not have to be predictable. It only has to occasionally surprise us in the right direction.
X-perp $BTC (+0.23%) future graph. Coutesy of Okx.