Supertrend
A trend-following indicator that plots a single dynamic line above or below price — green in uptrends, red in downtrends — acting as a trailing stop.
Description
Supertrend is a clean, single-line trend indicator built on Average True Range. It appears as a line that hugs price from below during uptrends (colored green) and from above during downtrends (colored red). When price crosses through the line, it flips sides and changes color — signaling a trend reversal.
How It Works
Supertrend uses two inputs: a period (default 10) and a multiplier (default 3.0). It calculates the ATR over the chosen period, then sets bands: Upper Band = (high + low) / 2 + multiplier × ATR; Lower Band = (high + low) / 2 - multiplier × ATR. During an uptrend, the lower band is displayed as the indicator line. When price closes below it, the upper band flips to become the active line, signaling a downtrend. The active band never moves against the trend, only in its direction.
How to Read It
A green line below price means the trend is up; the line acts as a trailing stop. A red line above price means the trend is down. A color change (flip) signals a potential trend reversal and is the primary entry/exit signal. The gap between price and the Supertrend line reflects the trend’s strength — a wider gap indicates a stronger, more established trend.
Common Uses
- Trend identification and direction filtering
- Trailing stop placement
- Entry and exit signals based on line flips
- Filtering signals from other indicators (only take longs when Supertrend is green)
Caveats
Like all ATR-based trend indicators, Supertrend whipsaws in choppy or sideways markets — the line flips back and forth repeatedly, generating a string of small losses. The multiplier controls sensitivity: lower values produce tighter, more frequent signals; higher values produce fewer but more delayed signals. Neither default nor custom parameters work well in all market conditions — regime filtering is essential.