Trading term

What is Supertrend?

Supertrend is a trend-following indicator that plots a single line which flips from below price to above it as the trend changes. The line is placed a multiple of ATR away from price, so it widens in volatile markets and tightens in calm ones.

Supertrend takes two inputs: an ATR period (commonly 10) and a multiplier (commonly 3). It computes bands a multiplier × ATR above and below the midpoint of each candle, then applies one rule — the line only ever moves in the direction of the trend, never against it. In an uptrend the line ratchets upward beneath price and never steps back down; a close below it flips the indicator, and the line jumps above price to become resistance.

The result is a visual that is difficult to misread: green line below price means the indicator says uptrend, red line above means downtrend, and the flip is a discrete, unambiguous event. Because the distance is set by ATR rather than a fixed percentage, the line automatically gives a volatile market more room and hugs a quiet one more closely — which is the reason many traders use it as a trailing stop rather than as an entry signal.

Its weakness is the same as every trend-follower's. In a sideways market price crosses the line repeatedly, the indicator flips again and again, and each flip is a small loss. Supertrend is a tool for markets that are actually trending.

One line, one rule
FLIPFLIPline below price = uptrendline above price = downtrendDistance= ATR ×multiplierwider whenvolatile,tighter whencalmThe line only moves toward price, never away — which is why it works as a ratcheting trailing stop.

Green below price means uptrend, red above means downtrend, and the flip is a discrete event. The line sits an ATR multiple away, so it widens when volatility rises.

For example

With a 10-period ATR and a 3× multiplier, a stock trending up has the Supertrend line trailing about $4 below price, ratcheting higher as price climbs and never falling. Price then closes $1 below the line — the indicator flips, the line jumps to roughly $4 above price, and the read switches to downtrend.

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Why it matters to you

Supertrend converts a fuzzy question — is the trend still on, and where would I get out? — into one line and one rule. That is genuinely useful as a trailing exit: it ratchets in your favour automatically, adapts its distance to current volatility, and removes the discretion that causes traders to hold losers and cut winners early.

⚠ It whipsaws badly in a range

Every flip looks decisive in hindsight, but in a sideways market Supertrend flips constantly and each flip costs money. Backtests that look wonderful are usually run over a trending period. Before relying on it, check what it does during the chop — and consider pairing it with a filter that tells you whether the market is trending at all.

Frequently asked questions

What is the Supertrend indicator?

It's a trend-following overlay that plots one line which sits below price during an uptrend and flips above it during a downtrend. The distance is a multiple of ATR, so the line adapts automatically to how volatile the market currently is.

What are the best Supertrend settings?

The common defaults are a 10-period ATR with a 3× multiplier. A smaller multiplier flips sooner — more responsive, more whipsaws; a larger one flips later, riding trends longer but giving back more at the turn. There's no universally best pair, only a trade-off you choose.

How do you use Supertrend as a trailing stop?

Hold the position while price stays on the indicator's side of the line and exit when a candle closes through it. Because the line only moves in the trend's direction, it ratchets your stop in your favour automatically and never loosens it.

Is Supertrend a lagging indicator?

Yes. It's built from ATR and prior prices, so it confirms a change after it has begun rather than predicting it. That's inherent to trend-following: you trade the meat of a move and give back a portion at each end.

Related terms

Anchored VWAPAnchored VWAP is a volume-weighted average price that starts from one candle you choose, rather than resetting at the start of each session. You anchor it to a meaningful event — an earnings gap, a major low, a breakout — and it tracks the average price everyone has paid since.Ascending triangleAn ascending triangle is a bullish continuation pattern: a flat horizontal resistance line on top, with a rising trendline of higher lows beneath it. As the higher lows squeeze price against the ceiling, pressure builds — and it usually resolves with a breakout up through the resistance.ATR (Average True Range)ATR (Average True Range) measures how much a security typically moves in a period — its volatility — as an average of recent trading ranges. It doesn't say which direction price is heading, only how far it tends to travel, which makes it a core tool for stop-losses and position size.Bearish engulfingA bearish engulfing is a two-candle reversal pattern in which an up candle is followed by a down candle whose body completely covers it. The second candle opens above the previous close and closes below the previous open.
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